The Future Of Dotcom Franchises
Last year we were all riding high on the endless promises of the new dotcom culture. Web-only entities were starting up in people's basements, launching record-breaking IPOs and making it possible for their twentysomething creators to retire millionaires and legends.
All industries got on the bandwagon. Companies had to make their Web presence known, by either launching their own e-commerce ventures or making offers on established names like Amazon.com and Yahoo!.
Franchisors also got into the act. In the most recent Franchise 500®, Entrepreneur recognized the growth of Internet businesses by awarding them their own category in the listing.
Now the honeymoon's over. Thousands of dotcom companies have gone under, and countless more that so eagerly made their way onto the Internet are now rethinking their strategies-losing employees and millions of dollars in the process.
But some franchises have managed to learn from the mistakes of others and hope to create stronger organizations that will lead the next wave of Internet companies.
"[The dotcom shakeout] has actually been very, very good for us," says Jack Reynolds, president of Internet service provider Quik Internet. "[Our franchise] is stronger than ever, because the Internet companies that sell below their cost are or have gone out of business. We are now competing on a level playing field with Internet companies that have to show a profit."
How has Quik Internet survived when so many nonfranchised dotcoms didn't? "The shakeout is centered around dotcoms that don't have an earnings-based business model," Reynolds says. "Our pricing and cost structure has been designed from the beginning to make money."
George Kimble, president of local advertising site TheBestinYourTown.com, also credits a seemingly unconventional business plan with keeping his company afloat. "It's my money so we're spending it frugally to begin with," he says.
Kimble also believes his company's use of the Web has made all the difference. "We're an advertising/marketing vehicle. We're not doing e-commerce or selling merchandise on the Internet," he says. "We're a source of information, and that's where the Internet's strength is."
TheBestinYourTown.com currently operates two Web site franchises in Rochester, New York, and Orlando, Florida, providing consumers with information on the best merchants, events, organizations and activities in their town. The company has also signed on franchisees for Syracuse, New York; San Diego, California; and Tampa Bay, Florida.
That's not to say that Kimble and his franchisees haven't been directly affected by the recent dotcom troubles-the effect is clear when they're trying to sell potential customers on the virtues of their company. "We have to take more time with advertisers to explain the strengths of the Internet and remind them that Internet usage keeps growing," Kimble says. "People spend more time on the Internet than they do with newspapers and magazines. That's an incredible statistic."
It's not just customers who need convincing; many prospective franchisees also have cold feet about buying a dotcom-related franchise. "People are more skeptical," Reynolds says. "There have been many get-rich-quick scams on the Internet in recent years, [so] people spend more time investigating us to make sure we're the real article."
Kimble says his existing franchisees remain confident in the concept. "Since we're new, we have a lot of time to devote to each franchisee," he explains. "And with the Internet you can change things quickly and experiment-keep things that work, change those that don't."
One thing that seems to be working for both companies is franchising. "The franchise model inherently provides better service to the customer," Reynolds says.
Still not sure about the viability of Internet franchises? Is this really a good time to buy a dotcom franchise?
"Yes, if it's done right," Kimble says. "I would not buy or start a dotcom company that actually tries to sell merchandise on the Net. But if the franchise utilizes the proven strength on the Internet, then now is the time."
Reynolds suggests paying close attention to a company's financial structure. "You need to be sure the [franchise's] cost-revenue relationship is conducive to earnings," he says.
And what about the future of the dotcom franchise category? Will it be around in future Franchise 500® listings? "It's not going to grow as a category until more people have broadband or fast access," Kimble says. "That will take a few more years, but the established dotcom franchises that have a solid, workable idea will grow even during the slow times."
Quik Internet, (949) 548-2171, www.quik.com