Who Will Win and Lose In The Franchise World?

This article originally appeared on Forbes.com

The Search for Relevance

It is clear the world is in a historic shift, with disruptive forces impacting global economies, traditional marketing models, and key tenants of the franchise model. Franchise companies that have enjoyed solid success in decades past are scrambling to find relevance with their static approaches to find candidates, pyramid-based hierarchies that resist change at the corporate level, and offers that provide customers with a compelling experience.

Meeting the Generational Shift Demands

Consider that according to FRANdata, a leading repository for franchise information, there are now less single-unit-owned franchises than multi-unit[i]. And to be clear, “multi-unit” intimates a broadening category that can include an individual or entity that owns more than one franchise business of the same brand or of disparate brands. Some multi-unit operators are building mutual-fund-type portfolios that contain complementary concepts. Scott Vigue, one of the largest franchisees in the Direct Energy System with One Hour Air franchises and Benjamin Franklin Plumbing franchises, has recently expanded into a carpet-/tile-cleaning franchise business, allowing him to leverage his sizeable customer base and local influence into another home service concept. “The ability to take a new concept to my existing customer base is a huge advantage” says Vigue, “and since they rely on a mobile format I already know the basic business model.”

How Social Media Is Changing the Conversation

Others are balancing between significant franchise holdings and the role of the franchisor. Tabbassum Mumtaz enterprise owns and operates over 500 Pizza Hut, KFC, and Taco Bell franchises and last year he purchased the Long John Silver’s franchise company, putting him in the role of franchisor as well. “Because I was on the receiving end of the franchisor role it was appealing to me to acquire a concept and put into practice franchising from a franchisee perspective,” said Mumtaz. “I now have a 360-degree view of franchising.” Clearly, this approach is a dramatic departure from the limited and historic use of the franchise model and is a glimpse into what we can expect in the future of franchising.

The Tension Between Standards and Preference

At its core, a franchise is a network of independent business owners acting in unison, either by franchisor/contractual mandate or, preferably, by the will of the franchisees. When looking at the origins of the word “franchise,” it could be described as the grant of independence or freedom[ii] whereby the franchisee is unencumbered by the franchisor with respect to the daily operations and activities of the enterprise. And I would submit that is exactly what the model suggests. There should not be someone from the franchisor looking over the franchisees’ shoulders every day to ensure they are following the brand standards.

A Powerful Model

The power in the franchise model is when franchisees choose to do what is in the best interest of the brand overall and not in their own personal best interest. Yet, many franchisors still choose to legislate compliance, thereby neutering the potential of the model. Many franchise leaders come from a strong corporate background and have never taken the time to learn the tenants of the franchise model, thus they lead top-down and solicit employee-like results from the network. A recent report by EY Beacon Institute on the power of purpose in business[iii] highlights a key finding: “Despite its many successes, the corporation itself is in a state of crisis, struggling to get beyond ways of thinking and acting that seem increasingly out of sync with the times.” This may well describe an increasing number of franchise companies unless they figure out how to unleash the power of their network.

Resistant to Change

The franchise model makes change inherently difficult. Each franchisee joins the system at a particular time and with specific goals in mind, and typically with little continuity. Some are excited to be a first-time small-business owner. Others are intent on building an empire. And others still are simply investors and may not even know where the franchises are located. How can leadership possibly implement significant change that equally satisfies all those constituents? Also, considering historically rigid franchise agreements at odds with ever-expanding digital manuals of all types presents a daunting environment for change management. While the appeal of the franchise model is the appearance of simplicity, it is, in fact a complex business model that is being asked to undergo tremendous change to retain its relevance in the future. How will franchise leaders respond?

[i] FRANdata

[ii] Online Etymology Dictionary

[iii] The State of the Debate on Purpose in Business - EY Beacon Institute