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How to future-proof your franchise development


Published:

Alicia Miller

Illustration by Jonathan Hankin

Franchise buyers (as well as finance partners, debt markets and investors,) want evidence of your brand’s sustainability. Your franchisees are also considering expansion options—should they expand with your brand or look elsewhere for growth?

Increasingly, the issue of brand resilience is a key decision filter for buyers. Describing the future of your brand, and how you handle change management, is a critical part of the franchise discovery process.

Sensitivity to brand longevity

Why are buyers more attuned than ever to how your brand will withstand change? First, buyers themselves are changing. Baby boomers have been a reliable source of franchise candidates for decades. FRANdata estimates that 60 percent of franchises are owned by baby boomers, and the Bureau of Labor Statistics estimates that 10,000 boomers in the U.S. turn 65 each day. Even if boomers are financial partners to Gen X and millennial buyers, your candidate pool will gradually see greater influence from emerging buyer groups.

Buyer sensitivity to your brand’s change readiness will increasingly align to each new generation’s inherent awareness of change and expectations around tech adoption.

Second, buyers (and spouses) are also sensitive because of changes they have personally endured. Memories of job impacts, recession or other experiences are background influencers. Probe candidates’ change readiness, personal appetite for risk and attitudes about debt during the discovery process.

Third, some well established brands that once were seen as sure bets now struggle under the weight of legacy footprints, disruptive technologies and changing consumer needs. Before candidates sign a 10-year franchise agreement, they want to know today’s hot concept won’t be displaced tomorrow.

Consider some disruptive companies launched within the last 10 years: ChowNow, Stripe, Impossible Foods, Lyft, Instacart, DoorDash, and Kitchen United. None of these brands are franchises, but all have impacted franchising.

The path to technology ubiquity is decreasing. Candidates feel the impact in their own lives and careers. According to TechCrunch and Visual Capitalist, it took 50 years to reach 50 million telephone users. It took only four years for the internet to reach that milestone. Facebook reached 200 million users in two years. Fifty million users downloaded the Pokémon Go app in only 19 days. It’s not just change but also the pace that concerns candidates. The hundreds of new franchise brands entering each year will also disrupt and represent significant deal competition.

Future-proofing franchise development

Separate the “what” and “why” (your ethos, mission) from the “how” (methods, practices) in your conversations with candidates. Be clear about what will and won’t change about your brand identity and focus, and why that has lasting value. Franchisees should sign up to the what/why more than the how. If they are too invested in the how, inevitable changes during their period of ownership will feel much harder.

Recruit and approve only franchise candidates who are open-minded, flexible and also comfortable with both technology and change. Look for strong evidence of these attributes.

This is not an age issue. It’s about curiosity, adaptability, tech savvy, resilience and ability to learn.

Ensure candidates also have a strong servant-leader and customer service mindset. Change impacts customers and employees, too. Franchisees must be willing to work patiently with their stakeholders as service delivery models or offerings change. And of course, ensure your franchise development team is tech-literate. They should be well prepared to answer detailed technology questions from candidates.

You’ll also want to show candidates your technology roadmap and ask for feedback. Include your technology lead in discovery day. Develop detailed technology FAQs. If you don’t already have a tech advisory council to leverage the knowledge of your most tech-savvy franchisees, create one. Share with candidates how that group influences your brand’s technology decisions.

Demonstrating the strength of your product development process and implementation track record is equally important. Present case studies demonstrating how your brand adapted to or rolled out changes to the system. Strong mature brands should also describe how they fared during the last recession. Newer or weaker brands won’t have that proof point. What was the impact on same unit sales? Unit growth? Customer transactions?  Many franchise candidates (as well as private equity) place a high value on recession resistance.

Anticipate increased investments in franchisee training over the life of each franchise agreement. Most franchisee training is front-loaded. The strongest brands have targeted ongoing support to ensure franchisee profitability and to help with changes and updates. Transition support is also important for brands anticipating a wave of retirements.

Franchise agreement language, meanwhile, should provide maximum flexibility regarding evolving technology requirements, upgrades and associated fees. Many franchisors charge a nominal flat technology fee. A percentage range with a cap may be a better approach.

Creating flexibility regarding units open reported in your FDD is another opportunity. Franchisors should provide clarifying FDD language to separate different types of real estate, hybrid spaces, points of presence, online service delivery options and other models. Territory definitions themselves may need to evolve, so ensure as much flexibility as possible in your agreements. Also, consider tiered royalties for off-premises services.

Your suppliers need to future-proof as well. Ask questions about their ability to provide long term value, their R&D spend and willingness to train your franchisees.

Embrace “planned obsolescence” to harness and even weaponize change, rather than simply weather it.

New to the Franchise Times columnist lineup, 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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