I have always been a big believer in brand: having one, building one and the value of one. Over the years, I have heard many different theories, best practices and strategies for growing a brand, but one in particular has fascinated me in terms of how quickly a household name can be born. Franchise concepts take into account a number of factors that allow the growth of a brand in an accelerated fashion, and it hasn’t gone out of style yet. In fact, the number of franchise establishments is expected to grow to 781,794 by the end of the year, and the franchise sector will make up about 3 percent of the U.S. GDP in 2015.*
Here’s why the franchise industry continues to boom:
Low capital needs
- Franchisees provide upfront franchise purchase fees which provide working capital to the company.
- Franchisees access small business loans to purchase and open a franchise, limiting the need for the company to find capital and outlay the full cost of opening a retail location.
Low early barriers to entry
- Many franchisors have just one corporate concept location and then put together the franchising materials both from an operating and a legal perspective to sell franchises.
- You don’t need an extensive retail rollout experience yourself as an entrepreneur to set forth on a retail expansion strategy.
Low marketing costs
- Franchisees become brand ambassadors in their local communities and social circles. Likewise, franchise retail storefronts in prime locations can become billboards in a community, driving brand recognition both to prospective clients and prospective new franchisees.
- Franchisees participate in providing marketing funds for the portfolio through contributing an agreed percentage of revenue to an advertising fund that benefits the brand and all franchisees.
- Social media and grassroots marketing are also two strategies that can help attract new franchisees as well as customers by creating buzz.
Low correlation to economic downturns
- Franchise sales often increase in economic downturns as individuals move out of the corporate sector and into the small business or self-employed world.
- Revenue becomes highly diversified across the full portfolio of retail locations and provides geographic diversification as well.
We have seen brands like The Learning Experience in our own portfolio grow by upwards of 20 to30 locations per year as a franchisor of their early education learning centers, building their brand with clusters of locations and word of mouth referrals. BrightStar Care, a national in-home care and medical staffing franchise is another one. They started franchising in 2005 and has since grown to a $300 million company with 300 locations. You may be familiar with Orangetheory Fitness, which has opened 225 franchise locations and is on track to have 600 studios worldwide by 2017. Indoor trampoline company, Sky Zone saw business and franchise sales explode when they went on “Under Cover Boss” to promote their franchise system.
What might be most exciting about franchise business models is the idea that franchising is one big entrepreneurial push. It’s all about empowering a community of entrepreneurs and their hunger is what fuels franchise royalty streams. I will continue to be a fan of the concept and look forward to the next generation of new consumer brands that embrace it and hold on for the ride.
*International Franchise Association Educational Foundation, 2015. The Franchise Business Economic Outlook: 2015