For the last several years, record numbers of new franchisors have entered the marketplace-more than half the franchisors in the marketplace today are less than 10 years old.
Why this explosion?
In part, businesspeople are becoming more aware of the power and the benefits of franchising. But beyond these factors, another not-so-obvious factor has instigated this explosion: the internet.
The Great Leveler
Perhaps more than any single factor, the internet has helped level the playing field for the new franchisor. Never before has someone been able to get the message of a new franchise to a broad market this fast.
Two decades ago, if you wanted to compete with "the big boys," you would need to advertise to get franchise sales leads. Back in the Dark Ages of franchising, about the only way to get any real exposure would be to run full-page ads in Entrepreneur magazine and two-column-by-three-inch ads in the Wall Street Journal. That kind of advertising commitment was simply not economically feasible for most startup franchisors.
Today, while the new franchisor has the same operational and legal costs to get into the marketplace, a college kid with a lemonade stand and a credit card can create a first-rate franchise website over a weekend, run pay-per-click ads on the front page of Google and be talking to prospects by Monday. And while he may not be able to afford the top position for long, his website could be just as impressive as the website used by McDonald's. Likewise, production and mailing costs for marketing materials and UFOCs have been significantly reduced (and, for some franchisors, eliminated) as streaming videos and PDFs replace their traditional hard-copy ancestors. Especially in markets where there is not yet a well-established brand, new franchisors can dominate a new niche very quickly.
Of course, this can be good news or bad news, depending on whose ox is being gored. If you are a startup franchisor, the internet can allow for significantly faster expansion and better exposure than you might otherwise have achieved.
More Leads: Boon or Bust?
From the franchise buyer's perspective, the internet has also made shopping for a franchise significantly easier. During the Dark Ages, a buyer had one or two opportunities a year at trade shows to get a large amount of information on multiple franchises at one time. In those days, even many of the print directories that exist today were not available-and those that were certainly did not index the entire universe of franchise opportunities. So most buyers resorted to reading magazines, making calls and waiting to hear from the franchisor.
Today, gratification is instantaneous and easy-perhaps too easy, at least from the franchisor's perspective. There are over 70 web portals that advertise franchise opportunities, all of which provide some degree of information about the franchisors they advertise. Most can be sorted based on categories like investment size, geography or industry. And in virtually every case, obtaining more information is as simple as a few keystrokes. Prospective franchisees can jump to a franchisor's site and download a PDF of their brochure and maybe a streaming video to boot. A couple more clicks, and they can download a UFOC online. And those ubiquitous information request forms-franchise shoppers may figure "Why not fill them out and see what gets e-mailed, or sent, as part of the package?"
The net result: More and more franchise buyers are relying almost exclusively on the internet for their information gathering. And, in the process, the average number of franchises they will examine has gone up significantly. At the same time, the average number of leads generated over the internet is going up, while close rates on those same leads are going down.
Of course, savvy franchisors have found new ways to deal with-and capitalize upon-these trends.
Website optimization is (at least in internet time) the grandfather of these techniques, although effective optimization tactics change almost daily. Video is increasingly being used as a means of increasing click-through rates and capture rates (the number of site visitors who provide information to the franchisor), while lowering marketing costs. Internet auto-responder matrixes are increasingly replacing traditional autoresponders as a means of providing a targeted "first touch" and sorting through the plethora of new leads generated by the online media. Salespeople are instantly notified when a lead is received-some franchise sales organizations boast targeted first-call response times of 15 minutes!
More than Just Sales
In addition to lowering the barriers to entry for new franchisors on the sales and marketing side, the internet offers some significant advantages to all franchisors when it comes to communications, training and reporting.
Intranets have long (again, in internet time) been a staple of the franchise community. They allow franchisors to simultaneously create a community and an educational venue. In addition to housing operations manuals, more sophisticated intranets will also house training materials, videos and tests that will allow franchisees to better replicate the franchisor's system. If it's done right, the net result can be better quality control and brand maintenance at a lower overall cost.
This methodology offers additional value that traditional training does not: It is both instantaneous and easy to sort. If franchisees have a problem installing a widget, with a few keystrokes and the right password, they can be watching a video on the subject over their PDA without missing a beat.
Moreover, because streaming video is such an inexpensive tool to use in the training process, brand maintenance can extend to lower levels of the organization than ever before. In the Dark Ages, companies had no choice when it came to low-paid, high turnover positions. Your only option was to "train the trainer." But today, video supplemented by online testing can elevate quality control throughout the organization. Some franchisors are training crew level staff via podcasts and other remote media devices. And given the ease of digital editing, creating videos in multiple languages is only slightly more expensive.
The use of video and online testing has some legal benefits as well. By documenting that franchisees or your employees were trained and understood various elements of the system, you may be in a better position to enforce quality control provisions of your contract or avoid vicarious liability issues.
Don't Ask the Internet to Do a Man's (or Woman's) Job
For all its benefits, it is important to also remember what the internet is not.
An e-mail or an autoresponder is never a substitute for a needed phone call or a face-to-face meeting. And the written word, because it lacks tone and feedback, can be much more easily misinterpreted.
The internet cannot sell. It cannot build relationships. It cannot measure quality at the unit level. And it cannot build trust between the franchisor and its franchisees.
The best franchisors in this Modern Age of franchising will be those who not only recognize how to leverage the internet, but also understand when they shouldn't even try.