Twice a year I attend a franchising conference where I have an opportunity to meet with hundreds of franchisors, learn the newest trends in franchising, and reconnect with old acquaintances. Last month the conference was in Saint Louis, and it is amazing how franchising is evolving.
Whereas in the past, storefront businesses were at the center of most discussions, today service-based franchises are demonstrating incredible power, predictability, and competitiveness. The back end operating systems of top-shelf, service-based franchisors are incredibly powerful. Many of them include complete marketing systems, scheduling systems, call centers, employee management systems, financial systems, and everything else you need to truly scale your business. I am exceptionally impressed with what I’m seeing on the service side
Private Equity capital continues to play a larger and larger role in franchising. Whereas previously franchisors had to struggle to find the financial resources build their infrastructural support systems, today high-quality franchisors have a large variety of suiters ready to provide the financial resources that are needed to aggressively scale their support systems. In addition, private equity is now beginning to buy larger, multi unit franchisees and consolidating ownership across states.
We continue to see larger and more sophisticated franchisor holding companies. These holding companies are not only building strong support systems, but they are applying their support systems across multiple verticals (AKA modalities). In the past investing in an upstart franchise system was highly risky. Today these large holding companies are able to provide some risk mitigation when it comes to new concepts in that their back-end operating system has already been tested in other verticals and is known to work.
Franchise Sales Organizations
Franchise Sales Organizations (FSO) are becoming more and more prevalent in the world of franchising. Whereas previously most franchisers had no choice but to expend time and money building an internal business development function, today many franchisors are trusting external FSO’s to educate and screen prospective franchisees prior to meeting the candidates personally and making a determination as to whether they should be offered a franchise. Quality FSO’s allow the franchisor to focus, almost exclusively, on driving the operational support system and supporting franchisees as they open locations. Finally, some FSO’s are taking a more active advisory role. It will be interesting to see how this trend continues to evolve.
Finally, for the first time I ran into a couple of franchisors who will completely run the business on the franchisee’s behalf. Previously the franchisee had to be either actively involved in the business or semi actively involved using a manager. These new franchisors are taking full operational responsibility for the business turning the opportunity into a structured investment alternative. Of course, these types of opportunities are mostly focused on well-heeled investors, but I do believe we will begin to see more of this type of investment.
It is truly an exciting time in franchising. With substantial financial resources in a competitive marketplace, top-quality franchisors are truly stepping up their game. At its heart, franchising is about risk reduction. While even the best franchise or cannot eliminate risk, the best franchise systems are doing an awful lot to reduce it.