Why Millennials Are Becoming Franchisees
A decade ago, you'd be hard-pressed to find anyone in the franchising industry who thought 20 and 30-year-olds were prime franchisee candidates. That has changed.
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Around the office, Hao Lam is known as "the old man." By franchise-industry standards, the 47-year-old owner of Best in Class Education Center represents a fairly average age. But Lam's COO is only 27. Everyone else on the corporate staff is in their late 20s or early 30s. And about one-third of Lam's franchisees are Millennials, the generation born between the early 1980s and the early 2000s.
Lam is the only non-Millennial at Best in Class, and he likes it that way. "Millennials are willing to listen and willing to take the help you provide. It's really good," he says. "They may not have the experience of Gen Xers or Baby Boomers, but nowadays the younger generation is so well-rounded."
Ten years ago you would be hard-pressed to find anyone in the franchising industry who thought people in their 20s or early 30s were prime franchisee candidates. For the most part, franchise ownership has been reserved for a small demographic of high-net-worth individuals or executives from corporate America with the desire to go out on their own. But lately that has started to change.
Franchises, especially lower-cost franchises and tech-based systems, have "discovered" Millennials. Despite a media-fed stereotype that Millennials are self-absorbed, avoid hard work and expect praise without accomplishment, franchisors who have worked with them have found many to be energetic, adaptable, smart and industrious.
"The tide has definitely turned, but even more so in the last few years," says Paul Segreto, CEO of the Franchise Foundry, a franchise development firm based just north of Houston. "In home-based and low-cost franchises, Millennials will make up 50 percent of new franchisees over the next two years."
Thanks to the Great Recession, the crumbling job market and changes in employment culture, Millennials are wary of corporate America and more interested in alternatives like franchising.
"Where I saw the tipping point was a few years ago," Segreto says. "Steve Wozniak from Apple was asked if there would ever be another Steve Jobs. He answered that normally he would say no. But after looking at the current generation of young people, he thought there would be more [innovators like] Steve Jobs and Bill Gates and Larry Ellison because there are so many in the younger generation who are unemployed or underemployed and have so much talent. But because of high real-estate and startup costs, it's hard to start an independent business. Millennials are looking for alternatives. That's where franchising fits in."
The International Franchise Association launched a program called NextGen in Franchising to educate Millennials about the industry, and franchise consultants have begun launching social media campaigns to attract the emerging demographic.
It took a few years for Lam to discover the value of this younger generation, but now he sees many advantages. "We really look at adaptability," he says. "Sometimes people who have been teaching for a long time don't want to make changes to their methods or follow our system closely."
However, Millennials (and their younger counterparts) tend to follow the Best in Class business model with fewer problems. Lam also appreciates their openness to new technologies. "Millennials are on their phones all day anyway, so if we release an app to help them run their business more efficiently, they say, "Sign me up.' Sometimes an older franchisee will say that they want to keep using their spreadsheet to run their business. And that's perfectly fine, but it's nice for us to all be on the same page."
To attract Millennials, Lam made some concessions. Because so many younger franchisees are saddled with student debt, may have been unemployed for a long time and lack a nest egg, he set up several programs to help them financially. The company's Teacher Incentive offers a $3,000 discount off franchise fees and waives royalties for three months. Also, if a franchisee is doing well and wants to open a second or third unit but can't afford it, Best in Class invests 50 percent of the costs and gives its franchisees three years to buy the company out. "We have no intention to make money off the deal," Lam explains. "We just want these young, passionate franchisees to be able to grow."
Jonathan Barnett, founder of Oxi Fresh Carpet Cleaning, which has 270 units across the U.S., was born in 1980 and started his franchise system when he was 26. He hadn't thought much about generational differences, but when he started reading about Millennials, he says he was amazed how well the research summarized him and the majority of his franchisees, who are in the same age group.
"People who own Oxi Fresh franchises are highly motivated to own their own business but might not have the capital to build a McDonald's," he says. "They're adaptable and flexible and aren't tied down to traditional concepts."
In fact, Oxi Fresh seems tailor-made for Millennials. Not only did Barnett build the franchise system as a low-cost, tech-based company, but he also created a new proprietary system for cleaning carpets—one that is greener, cheaper and faster than traditional carpet-cleaning methods.
"In the beginning, I thought our best franchisees would be older, business-savvy guys," Barnett explains. "But it's been the younger guys who were able to get small-business loans who are kicking tail. It's been an eye-opening experience for me."
As a Millennial, he also knows what motivates his peers and is able to harness those qualities. "People say Millennials are lazy, but they can be passionate and work hard," he says. "They just have to believe in something bigger than themselves. Our younger franchisees are really concerned about using less water and saving the planet. The older generation doesn't seem as concerned about being green."
Oxi Fresh breaks from tradition in other ways, too. Instead of recruiting franchisees using coaches and brokers, which is standard in the franchising world, Barnett signed up 99.5 percent of his franchisees through internet-generated leads and referrals from current franchisees.
Like Lam, Barnett also found some weaknesses common among Millennials, and changed his system to address them. "Many Millennials seem less organized than our older franchisees," he says. "So we've really worked to systematize things, and we have a central booking service so they don't have to constantly answer their phone."
Taking some of the back-end duties off their plates also appeals to Millennials in other ways. Unlike other generations that were willing to work long hours, even the most ambitious Millennials are interested in maintaining a work-life balance. "We want our franchisees to be able to go to their kid's soccer game," Barnett says. "So we've built a structure where they can. We want that work-life balance to be a strength in our model, not a weakness."
Another trend among Millennial franchisees has them teaming up with their Baby Boomer parents. "Obviously, the employment situation for Millennials is not very pleasant," notes Terry Powell, founder of The Entrepreneur's Source, a Southbury, Conn.-based franchise and business consulting system. "With limited jobs and a natural drive for independence and stability, [Millennials have found] franchising an appealing career path. Many are convincing their parents to invest their 401k in a franchise venture with them. The parent can be an investor, mentor or partner, and bring along the experience and know-how from their career. It combines the stability and experience of the Baby Boomers with the drive of the Millennials."
It's something that the executives of Anytime Fitness have noticed. The company estimates that about one-third of its franchisees are Millennials, but more and more parent-child partnerships are emerging.
"We have one father and son who have opened 13 clubs together," says CMO Stacy Anderson. "The father's a Boomer who has a lot of business acumen, and the son was looking for a way to get into the work force. They've done extraordinarily well. It's a fascinating phenomenon."
Anderson says Anytime Fitness didn't set out to attract Millennials, but she believes she knows why the system appeals to younger franchisees. "It's not so constrictive that they can't find a way to bring their own personality into it," she says. "The idea of fun and a sense of play are really attractive to that generation. They don't have to sit at a desk and crank out reports from 9 to 5."
Meanwhile, working with Millennials has reinforced some aspects of Anytime's culture. "I think we have a really nice trifecta when it comes to Millennials," Anderson says. "We're in a great category, we have a great business model, a low-cost turnkey franchise and a culture that is tied into purpose and play. That's why we're seeing this trend. There's some serendipity involved, but we're taking advantage of it."
Trevor Kaftan, a 31-year-old Hudson Valley, N.Y.-based franchisee for N-Hance, a cabinet and wood-floor restoration franchise, says he always had an inclination to be his own boss. He sold Cutco knives during college, and became an independent owner for them afterward. He left that job to work at Sears in the home-improvement department, designing and selling kitchen-remodeling projects. When the recession hit, however, sales plummeted.
Kaftan read about N-Hance and thought resurfacing cabinets was a cheaper, smarter alternative to what he had been doing. Three years later, he owns three N-Hance units and employs eight people.
"I have lots of friends who got involved in some sort of business, and they're doing well, but people who went to law school or medical school are struggling," he says. "I have a friend who earned a master's from Georgetown and is just exceptionally smart but doing temp legal work in New York. I think a lot of us saw what our older siblings went through, and we're not going to sit around waiting for the right opportunity. We're going to create it for ourselves."
Creating those opportunities will keep getting easier as the franchise world realizes the potential of Millennials. Andy Bell, CEO and president of Lakewood, Colo.-based Handyman Matters, recently discovered that his top franchisee was only 29. "It opened our eyes big-time," he says. "Once we saw that, we realized we shouldn't discount someone because of their youth. We should celebrate and recruit them. We stumbled across it, but now we're going after it."
In fact, Handyman Matters' lower-cost system, with its focus on technology and support, is a perfect fit for young businesspeople. As a result, the company is making social media and recruiting Millennials part of its marketing platform going forward.
"It's a calculated risk going into a franchise," Bell says. "But Millennials are young enough that they have an attitude that everything is recoverable. They are not averse to risk. They take the caution out of running a business. They're becoming wildly successful because they don't pause when making critical decisions."