Franchise Development Takeaways from the 2018 IFA Conference

The opportunity for massive growth exists for those systems that get it

For the 58th International Franchise Association Conference, almost 4,000 attendees traveled to sunny Phoenix to attend a week’s worth of best-practice sharing, think tanks, education, and franchising strategy sessions. The IFA conference remains the premier event to learn about franchising in the world.

If you’ve tuned into articles and blogs about the state of franchising and franchise development, you’ve probably read that the industry bubble is about to burst, that franchising is a tremendously difficult business model to execute and that growth will continue to be anemic. The gist is that there are too many franchise systems and in a booming job market, franchising historically shrinks as people take jobs rather than starting new businesses. There is a lot of doom and gloom scare tactics in articles about franchising today.

We think these articles are wrong. We think the buying population today is substantially larger, much younger than people realize, and that they have totally different motivations for wanting to own a business than the generations before them. We see a wave of optimism backed by real sales results that are in stark contrast to the doom and gloom, and there is a real risk for companies to buy into the conventional wisdom prevalent in the industry today. There is a disruption in the industry and the last people to grasp this are the longest tenured and most experienced in the industry.

The talk in the hallways, hotel lobbies an in the back of sessions this year was consistent: 2017 was a solid year for franchise development and no matter what size your system or job role in a franchise system is, 2018 is quickly shaping up to be an even larger year.

To say there is optimism about the franchise industry, franchising in general and growth goals is an understatement. For the first time in more than a decade, franchisors have few obstacles to growth and the market for franchise development is booming. Enthusiasm is pervasive and we talked to several brands who started franchising in the mid-2000s and decided to start again thanks to the positive environment.

 

There is a good reason for this – there are as many as 4,400 franchise companies in operation in the U.S. and more than one new system launches every day. In addition to the large increases in franchise systems, there are record numbers of potential franchise buyers. We estimate, for example, that there are as many as 25 million people actively looking at or considering business ownership at any point today. That’s a large surge from where the franchise industry was 10-20 years ago.

 

Coupled with the large numbers, there are younger generations of buyers entering the market. For the brands we represent, Baby Boomers made up only 18% of new franchise buyers. Generation X buyers were the power group, purchasing 56% of franchises and Millennials making up 26%

As Baby Boomers fade from the scene and become much less important for recruitment, we see that not only are Millennials entering a powerful buying stage but also there is a group behind them that appears to be even more entrepreneurial – the YouTube generation. Diversity is playing a critical role in development and large numbers of ethnic or non-white franchise buyers

Younger buyers think differently, buy differently and have vastly different ideas about risk, investment and value proposition.

At the same time, franchise systems have become much more transparent and thanks to an industry-wide focus on helping emerging franchisors succeed, more systems are avoiding costly mistakes.  New and emerging franchisors we work with are not thinking limos and champagne today, they are bracing for the long, slow and costly climb to royalty self-sufficiency. The path to growing a successful system is more clear and easier to follow than ever before.

This should be a recipe for across-the-board-breakthroughs, though if we’ve learned anything from 2017 it won’t be.

The performance gap between the population of buyers and our franchise development efforts is serious – we recruited less than 20,000 new franchisees last year, even when the audience of buyers skyrocketed and there are more people interested in franchise development than ever before. Our industry – especially when it comes to franchise development – appears stuck in ‘I don’t get it mode.’

Companies that can break through conventional ways of thinking and rethink the approach to development have a chance to jump ahead of the competition. Brands that understand the shift and don’t see franchising as a bubble about to burst to have an opportunity to stay relevant and grow.

Here are our franchise development takeaways from this year’s IFA conference:

Franchise recruitment is changing in dramatic ways

Every year at this and other franchise conferences, franchise development execs and recruiters meet and say basically the same thing: there have been some shifts in the way people buy, old ways of sales and marketing don’t produce results and we need to find new ways to connect with buyers.

This year was no different. In session after session, mostly Baby Boomer recruiters sat in echo chambers, trying to rationalize poor performance, rising lead generation costs and theorizing away their overall lack of results. It couldn’t be them, right? It must be the leads. It must be that people are busy. It must be that because the job market is strong, no sane person would choose franchise ownership over employment. Texting doesn’t work. Contacting people quickly makes no noticeable difference.  It must be that there is no way younger buyers can fund deals and there is no way a recruiter making $150k a year can reach people after hours and on weekends. One lame excuse after another.

Here’s the deal: we don’t get it. As an industry, we are seriously out of step with what is going on and what is propelling buyers today. Some of it is the changing role of a recruiter – a high-performance recruiter today may have some of what presenter Walter Bond called the habits and disciplines of a top performer from 20 years ago but they approach the job from a totally different angle.

Some of it is radically changing buyer populations. Baby Boomers only made up – by our estimates – 18% of the buyers in 2017 and that number is plummeting. Baby Boomers think from a risk-averse point of view. They were raised to go to college, work for a big company and retire. Having a ‘real’ job was the best career choice you could make. Doing something ‘entrepreneurial’ was something you did only if you couldn’t get a job.  Only exceptional people owned businesses – they were the outliers.

This perspective is disappearing, and there is a new attitude emerging from today’s entrepreneurs, who think that a job is what you can get if you can’t own a business.  A job is, for almost 70% of buyers under 35, plan B and business ownership of some kind is plan A. Prior economic cycles won’t apply the same way going forward and what the Kauffman Index of growth calls ‘the Millennial Entrepreneurial Surge’ is taking off like a rocket.

 

Historically, most people start businesses in their early 30s and the oldest Millennials are not halfway through their 30s. Yet we continue to patronize them, talk down to them, alienate them and belittle their drive. As usual, we behave like a pack and treat all Millenials as a monolithic buying group. They all behave the same, have the same lack of funding and stubbornly won’t follow our outdated sales processes.

Millennials aren’t even the youngest buyer group. There is an entire generation behind them now graduating from college that is even more entrepreneurial – the YouTube generation.

Sitting in a lead generation session full of Baby Boomer speakers, a smart and very successful recruiter, who is 31, leaned over and commented how she didn’t understand why the speakers didn’t get it. They were missing almost all of the opportunity she sees in today’s market.

It isn’t that because we now have 4,400 franchise brands that we will continue to have the same 15,000 buyers every year. It is because there are 25 Million buyers struggling to get our attention, and there is plenty of room across more than 10,000 franchise systems. Business ownership is the new standard for most people – the majority – and if we can get our heads out of the sand, we might realize it.

Doing so means thinking differently, acting differently, experimenting aggressively being far more transparent, leveraging technology in new ways and learning to leverage the emotional parts of your brand story.

The Sales Process Is Changing

Conventional wisdom says that everyone needs a sales process and how well candidates follow the process can determine how good a franchisee is. The thinking goes that if someone won’t follow instructions, then they won’t follow the system. There is a MAJOR problem with this simplistic thinking: just because someone won’t do what a salesperson wants doesn’t mean they won’t follow the instructions; it more likely means the salesperson isn’t doing a good job of facilitating the needs of the buyer. Buyers have a buying process and a salesperson has a sales process – when the salesperson learns to discover what the specific buying process is for each individual buyer, they unlock attention, engagement and ultimately deals.

Look at your web traffic or chart when leads come in. You’ll see as much after an hour and weekend activity as you will during the business day. Are your recruiters working banker hours? Do you stagger shifts and have recruiters working weekends so they can engage prospects when they are at the peak point of attention? Is someone on call every day to handle incoming calls and texts? Do you even generate leads via text and phone or are you still trying to use lead forms to cherry pick buyers?

This means that the sales process is different for each buyer and that to be successful, a franchise recruiter needs to see each lead as a real person with real goals and objectives.

To be successful today, the role of a recruiter is to see each person as a unique and talented individual, each with goals and aspirations. To treat this person who picked your brand over 4,399 other franchise systems with dignity and respect. To make them feel included, regardless of race, age, ethnic origin, financial ability or prior experience. To help that person understand what they need to do to become a business owner and take control of their life, hopefully using your franchise opportunity. This is a noble and worthy endeavor and we should all be honored to work with people pushing to better themselves.

This person is obviously interested in franchise ownership and interested in your brand. That doesn’t mean they are currently qualified to make a purchase or that they are ready to step up to ownership.  Callously discarding people so you don’t have to do the work of recruiting over time costs our industry thousands of deals a year. We estimate that for every deal we see clients get across the finish line, there are 4 other buyers that recruiters discarded, stepped on, shortcut or otherwise disrespected. These buyers might buy something from someone else or might just fade away because the recruiter not just blew the deal, they gave the buyer a bad taste about franchising in general.

Recruiters today need different training, different techniques, different skills and better technology than they previously had. Arm your recruiter with these and you will have a better chance of earning new franchisees.

The franchise recruitment website is evolving

It is amazing to think there are franchise companies that still lack a separate franchise recruitment website and either try to cram their entire value proposition into a single, tabbed page or have a skimpy website that a prospect can skim in less than 3 minutes.

The franchise recruitment website remains the single most important part of your franchise development effort and as we’ve written about for years, if you get it wrong, you can derail your entire franchise sales efforts. The return on getting it right is enormous, and the sales data within the franchise industry bears this out:

A whopping 61% of deals came from company website leads and this number would be as high as 70% for brands that don’t work with brokers. If you wanted to recruit 24 owners a year, that means 14 would come from your website. With an average franchise fee of $35,000, that’s $490,000 a year in income from your site. Over three years, it is almost $1.5M. Compare that to a fully loaded cost for an expert-built site that might cost $25-35k and you can’t really afford not to have a high-performance website.

All websites are not equal, though. As any franchise recruiter can attest, understanding how and why prospects buy franchises is a complex endeavor. A typical marketing firm, even on with franchise consumer experience, won’t understand how to earn and keep a candidate’s attention, driving them to convert from a visitor to a lead. A franchise purchase is a subtle and highly complex, large-ticket transaction. Don’t pick a marketing firm unless they can show you sales data from other franchise recruitment websites they’ve done. There is simply too much at stake.

A recruitment website today has to do the heavy lifting – it not only has to replace the first hour of conversation a prospect has with a recruiter so they are well into the sales process when they opt-in, it has to make real, emotional connections with buyers from four totally different generations. Baby Boomers are risk-averse and look at the business from a safety or ‘how does this compare to a job’ perspective. Generation X buyers look at how a business can provide the work-life balance that a job doesn’t and Millennials look at how a business can be emotionally fulfilling, fun to operate and provide a stepping stone to a life of business ownership.

Recruitment websites are changing, becoming much deeper and more expansive. They are built on varying types of media – articles, research funnels, validation libraries, infographics, explanatory content, embedded webinars, podcasts and all types of social proof. All of this content is designed to do one thing: engage a prospect and keep them on the site learning about the brand until they are ready to opt in. Keep in mind that a buyer typically has almost an hour of research they will do just on your website and if you don’t have enough engaging content for this person, you won’t satisfy their appetite for information.

One important takeaway: franchise recruitment content is more valuable if it can’t be consumed in 30 seconds. Longer and deeper is better when you are trying to recruit someone who takes 6 months to a year to research you.

Mobile first can be a mistake

For several years, we’ve heard how important it is to make sure our recruitment websites need to work well on mobile devices. With over 60% of the traffic now on phones, that makes logical sense. What many website designers miss, though, is that unlike consumer sites, recruitment websites keep prospects engaged as they take a long journey over time. For some, this is as short as 4-6 months. For others, this might be a few years and some even stay tuned into a brand for more than a decade.

What is important to think about is how well have you mapped out the journey franchise buyers take when they become aware of your opportunity and how well do you provide consumable content at each stage. For your website, this means that you have to have high-performance sites that work on all device types. They need to work well on mobile and also have to work well on a laptop or tablet. In reality, a buyer may start on a phone but if they are seriously interested, they’ll do substantial research on a desktop or laptop. Building a site for mobile first and not thinking about the entire journey can cost you deals.

Video and other media are becoming more important

Google states that over 70% of the content users consume in 2018 will be video. This makes sense as YouTube is the 2nd largest search engine and the generation behind the Millennials (they are no longer the youngest generation) is called the YouTube Generation.

Video production and ongoing, documentary-style video production is now a mandatory part of every franchise lead generation budget we produce. Showing people your brand and letting your own stakeholders speak honestly and directly to candidates can accomplish trust and emotional engagement in a way no other content can.

The takeaway this year is make sure you have budgets for video brand storytelling and that you are thinking about new and evolving ways to leverage video and integrate it with all of your marketing. We’re spending a lot of time on this with our clients and it generates excellent results.

Diversity matters

I was sad to see the poor turnout for the diversity session this year. With over 55% of franchise buyers coming from ethnic or non-white racial groups, understanding how to attract diverse buyers is critical in today’s market.

Speakers made some good points about diversity:

1. Separate your internal diversity efforts from you franchise recruitment diversity efforts. They are different and co-mingling them rarely produces results.
2. For diversity recruiting, think beyond traditional methods. It takes more than just making sure your marketing is diverse in the photos you use, you need to have a diverse staff and go to where diverse people are. Diverse groups are often more entrepreneurial than white buyers but they may not feel welcome to opt in. Travel to college campuses and attend job fairs, give franchising seminars to college business clubs, sponsor conventions and attend non-franchise trade shows.
3. Think differently about diversity initiatives. Consider contests or scholarships that give a free franchise fee in an inner city area and help people apply.

The rise of the Ghost Candidate

We were happy to hear this come up and we think it is perhaps our biggest takeaway this year. A Ghost Candidate is a candidate that opts in and then goes dark – meaning the salesperson thinks they’ve disappeared. At some future point, they resurface and jump right back into the process. This seems to confuse the salesperson, who is hardwired to work leads who want to close in a few months.

Seth Godin’s 2008 book, Tribes, turned the marketing industry upside down and led to the creation of Brand Journalism and content marketing. The premise was simple – for every company to exist, there needs to be a tribe of people who want what the company has to sell, fit into its culture and are emotionally wired for the business.

Franchise systems have tribes of potential owners and recruiters often lose sight of this. If I cared for a parent using home care and am an entrepreneur, chances are I’ll get a home care franchise on a deep, emotional level. I may even opt-in out of curiosity, even if the time isn’t right. If the recruiter just culls me out and tosses me to the dead lead pile, I might never buy. If the same recruiter communicates to me both with drip emails and personal notes over time, I might stay involved and connected. When the time is right, the recruiter will have earned my business.

Mapping out who these people are and coming up with more substantive methods for keeping the prospects who are not ready to buy but don’t belong in the graveyard and add many incremental deals to your pipeline. This requires more work with a much-delayed return but it is worth it.

As an industry, we do poorly when it comes to lead nurturing, focusing on the immediate result and ignoring the long-term marketing needed to keep buyers engaged. Ever wonder why so few buyers unsubscribe? You might generate 2400 leads a year and less than 5% will opt out.

The rest are STILL INTERESTED!

Death of the Rolodex and traditional multi-unit buyers in general

The Rolodex of multi-unit owners is much less important for recruitment today than ever before. The traditional focus on ‘multi-unit’ owners is diminishing. In part because the entire population of multi-unit owners is less than 10,000 people and brands are struggling with large deals to get units open. There are now faster ways to grow unit counts and unit performance.

I talked to a few development VPs at this session who were excited about signing over 100 units each only to quickly add that most won’t open and that the real number was much lower, wink-wink. They were happy about posting the number and the commissions but they understood most wouldn’t become actual units. This is a problem in our industry.

Smart brands are realizing that the brave move is to sign younger, less experienced and less capitalized single unit deals and learn to grow them into successful multi-unit owners. Brand after brand talked about how much higher performing operators were who started out as single units and how easy it was to grow them over time. This means fewer deals on the front end but a much healthier franchise brand on the back end.

In Summary

If you read articles about franchise development you’ll see a lot of doom and gloom. Our takeaway was that not only are these mostly wrong, our industry is sitting at the threshold of the largest surge in our history and the people in charge don’t get it on a mammoth scale.

If you are struggling in today’s market or can’t get results, it isn’t because there are too many franchise concepts – we think we’ll see 10,000 concepts in a few years – and it isn’t that there are not buyers because there are 25 million people looking at and interested in business ownership in the U.S. alone. You might be resisting change and unable to see the way buyers and buying behavior is evolving.

Those that do get it and begin to think differently will thrive in the year ahead as the franchise industry suggest to levels we’ve never thought of.

Curious about how your brand is set up to take advantage of these trends? Reach out to us and start a conversation about growth, tactics, and strategies. Learning where your opportunities are and how you can take advantage of them could be the most important call you make this year.