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.
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:
Separate your internal diversity efforts from you franchise recruitment diversity efforts. They are different and co-mingling them rarely produces results.
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.
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.
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.
Don’t be quick to write off portals – they produce 20% of the sales in the franchise industry
We recently collaborated with Franchise Growth Network to talk shop about franchise portals. The conversation with Matt Alden and myself encapsulates my best advice for clients I work with and is an important read for anyone involved in franchise development:
COLLABORATORS: Matt Alden/FGN – email@example.com | @2MattAlden; Thomas Scott/BrandJournalists – TScott@brandjournalists.com | @BrandJournalist
Even the most numbers-driven franchise buyers are emotionally connected to the brands they invest in. Thomas Scott founded BrandJournalists in 2008 to help franchisors capture, package, and broadcast the brand story to attract and engage more qualified prospective franchise buyers. But he also understands that growth-minded franchisors can’t rely on the work of organic marketing/lead-generation alone to achieve expansion goals. He leverages franchise portals not to make quick closes, but instead to build a bigger targeted audience to share franchisors’ stories with, knowing that the right prospects within the larger group will gravitate to the story and engage as qualified candidates.
Here are the questions Matt Alden posed to Thomas Scott that inspired this conversation:
Q: Have you always used portals as part of the recruitment marketing mix for your franchisor clients, or is this a more recent development as you’ve built your business?
A: We’ve always used portals for some portion of our advertising for clients. A successful franchise lead generation strategy should create visibility to your opportunity in as many possible locations as possible. Franchise portals play an important role in brand visibility, helping buyers mid and top-funnel learn more about options within franchising and alternative brands in an individual category or segment.
In addition, franchise portals play a very important role helping buyers comparison shop – they really are the only single place you can do research on who else is offering a similar franchise to the one you are interested in. Comparison-shopping is now a key part of how franchise prospects make buying decisions and I’d rather have my client’s bases covered than cede the ground to a competitor.
Q: Do you find that some franchisors are resistant to the idea of including portals in the mix?
A: Yes, and I understand the reasons why, too.
Franchise salespeople are given a tough job – sift through a large number of inquiries, do the hard work of contacting people from all over the country and trying to build a relationship with as many as they can so they can fill the pipeline with qualified prospects. A typical recruiter will get 100-150 leads a month and some get twice that. Knowing that a work week is only 40 hours, the amount of time it takes to do the sifting AND close deals that are active and in the pipeline is a stretch.
Over time, salespeople react in human ways to leads. They begin to form opinions on the lead sources and without realizing it, make up stories about the ‘leads’ before they ever reach them. This results in portal leads getting a bad reputation with salespeople.
It isn’t that portal leads don’t produce closable leads – in our industry, they produce more closes than all broker networks combined, about 20% of all deals. For emerging brands, they can produce an even higher number of closed deals. There are brands that do nothing but portal advertising and close deals on a daily basis.
The challenge salespeople face is to see each inquiry as a unique human being, each with specific and real goals and aspirations. If you work portal leads and the majority are hard to reach, are unreachable or are simply too far from away doing a deal to work, any person will get jaded quickly. If you bring into your sales efforts your judgment about portal leads, you’ll end up getting what you expect.
They will also miss the real buyers in the mix because they become jaded. If you put yourself in a typical buyer’s shoes, it would be hard to avoid franchise portals. We close deals of all types and all investment levels from portals for almost every brand we work with.
We had an unnamed client last year that had a CRM mapping issue for about 30 days. All leads came in as ‘Other’ rather than marked as the company website or specific portals. During this period, the sales activity skyrocketed. When we fixed the mapping issue, we realized that the salespeople thought they were working website leads when they were really working both portal and website leads. As soon as the mapping was fixed, the sales activity dropped, confirming bias on the part of the salespeople.
It is almost always a mistake to pass on some amount of portal advertising. If you don’t get good results, look to your sales team and try and improve your sales activity – or at least track it so you don’t get into anecdotal excuses. Working portal leads require more work than some other sources but that doesn’t mean it is a less viable. A buyer is a buyer.
We recommend basing decisions to advertise / not advertise on real data. Are your salespeople able to get an industry standard average sales activity level from portals? Do you even know what this is and have a way to measure it? Without it, you’ll have a lot of excuses and rationalized answers from your salespeople. Working portal leads requires more effort than other types and as a result, is simply harder. We think it’s worth the effort if you really want to maximize growth in your system.
Q: You’ve attended and presented at plenty of franchise sales seminars where the prevailing franchisor sentiment is that it’s a race to contact portal leads? Do you take a similar approach or do you use a slightly relaxed approach/cadence that sets the stage for the brand story to be delivered and captivate the right candidates?
A: I don’t think it is an either / or.
Based on my experience, and looking at sales data, teams that follow up quickly and do a thorough job contacting leads close more deals from portals, with no exceptions. We believe the average portal inquiry completes forms for 4-5 concepts at a time and will often have conversations with the first salesperson that calls then quickly gets inundated with calls from all the others.
If those five salespeople get the inquiry, the first one will think the lead is great and the other four will get brushed off because they were simply too slow to work the lead. Think about it: a typical portal lead is higher up in the awareness funnel than someone who is working with a broker or comes in from your company franchise website. They are less educated about your brand but are still interested in a change and are openly curious about franchise ownership.
When they visit portals and request information, they are wholly unprepared for the onslaught of calls they get and after the first one, usually turn sour. This results in unresponsive leads that just screen your calls or worse, get surly and even say they didn’t request your info because they honestly have lost track of who you are and just want the phone to stop ringing.
Let’s be clear: If your salespeople have too much of this feedback from portal leads, they are taking too long to reply. 10 minutes is long. 30 minutes means you are only 50% likely to communicate and anything longer is just throwing those leads away.
However, it isn’t possible for you to always be first or your may not have the time to make the 5-7 calls, texts, emails and voicemails you really need to make to work portal leads effectively. We see good results setting portal leads aside after you make the first round of contact attempts and coming back to them 3 weeks later and making a second round of attempts. By this time, these people have gotten through all the calls, are usually still interested and it is easier to catch them. This requires more work on the salesperson’s behalf but produces results.
Ideally, you would do both. The reality is that working portals leads requires a higher sense of urgency up front, a lot more follow-up than other lead types and perhaps some back end work as well to get people into your sales process. We think it is worth the effort and has now become part of a salesperson’s job in the era we’re in. With over 4,000 franchise systems all trying to market to prospects, the competition for buyers is getting intense and buyers will just gravitate to the brands that respond the most professionally.
Q: Do you have some good examples of franchise sales successes that originated with portal inquiries – any that you’d consider unique or surprising?
A: Here’s the deal with portal leads: the exact same cross section of buyers that come from all other sources also come from franchise portals.
I’ve seen buyers come from portal leads that were very experienced and very high net worth. I’ve seen entry-level buyers; existing franchisees looking to expand and just about every other type of buyer come through a regular portal lead.
The problem is just that not every person who request information from a portal is a buyer and not all buyers are at the same stage, making hard work for the salesperson to sift through and communicate well.
The secret is just to be methodical about the way you work these leads, don’t fall into the trap of cherry-picking or assigning values to portals and work hard not to bring your own judgment into your sales conversations. See each portal inquiry as a specific person and work hard to communicate with each. If a conversation doesn’t work out, just move on to the next lead and don’t make it mean more than it does. Don’t let the contact rate for portal leads become your excuse for goals. If you don’t contact as many as you want, try again and keep trying. After all, 20% of franchise sales, over 4,000 new franchisees a year, come from portals and if they don’t buy from you, they will buy from your competition.
Q: Have you been able to quantify or otherwise correlate franchisor exposure on portals with increased website visitation and/or inquiries from prospects that viewed an opportunity on a portal but did not use the portal to submit an inquiry?
A: Growing a franchise brand today is not easy.
With more than one new franchise system a day starting up and over 4,000 systems to choose from, the options a buyer has are more numerous than at any time in history. Buyers gravitate towards brands that are transparent, are easy to research in detail and have well told, helpful brand stories online.
We think of the research process buyers go through as a journey. It appears most buyers spend 12 months or more thinking about ownership and 3-6 months zeroed in on a single brand, most of this time prior to requesting information or engaging with a brand. Prospects become aware of an opportunity then tune into the brand’s story if they relate. The more visible the brand is in as many places as possible, the more likely they will slow down and pay attention.
Because the research process is a journey, prospects might start out on a portal – even though they don’t fill out a form – then proceed on to Google searches, social media or your website. All of your franchise development is connected and the more cohesive your story is, the easier it is for prospects to take additional steps as they research your brand. With substantially more competitors than before this is even more important.
When I have clients pause or stop portal advertising, we often see a 10-15% drop in organic leads that you could attribute to the loss of visibility, so yes, we think there is a direct connection. If you are an emerging brand with less than 25 units or less than five years in business, portal advertising is much more essential and you might see a larger impact on traffic to your recruitment website.
Q: What are some of the most significant changes you’re seeing with portal leads these days, and do any suggest changes in how best to work them to create the best opportunity for sharing the brand story?
A: If you look at the demographics within franchising, you’ll see a rapid increase in non-white, ethnic or immigrant franchise buyers. In many cases these are fully Americanized buyers who are 2nd generation Americans. Their parents came to the US and bought hotels or Subways. They’ve grown up in franchising and are super-entrepreneurial as a group. This non-white group is predicted to be more than 50% of new buyers in the years ahead and, as a group, they appear to use portals more often than similar, white visitors.
When I look at who is buying from portal leads, I see a lot more diversity and portal advertising is shaping up as a good lead source for more diverse buyers.
In addition, we see portal pages that have more content, not less, producing higher quality. I think the mistake most people made is just to throw up copy and let it sit. Often, the copy you start with isn’t as good as it can be and overhauling / improving your page copy can make a big difference. We try to replace ours annually and add infographics, videos and photos to ours. I prefer much longer pages if I can get away with it. The copy should focus on your core value proposition and the major themes that make your opportunity relevant to buyers. Portal pages are not one-size-fits all. If you can identify a specific class or group of buyers, focus your messaging to that group. Watering it down or shortening it to bullet lists rarely produces a good result. Give buyers something to sink their teeth into and slow them down with a well-told story.
Q: Anything else you’d like to add?
A: Overall, we believe in portal advertising for some segment of your lead generation budget. It doesn’t replace your company recruitment website, broker strategy or other organic campaigns but it can extend the number of deals you do annually. If you have tried portals alongside other marketing and don’t get good results, try to troubleshoot rather than just jump off. Train your salespeople and manage them so you can track conversion rates. Don’t take feedback from salespeople at face value – really look at the data to make sure you understand what is going on. Update or replace your copy often, too.
Perfect storm of positive growth elements creates both opportunities and barriers for franchise development
2017 is off to a roaring start and for the first time in over a decade, the future of franchising is bright.
The election is over, the SBA lending gates are open, Americans are gradually becoming more educated about franchising and Millennials are entering the franchise ownership ranks in record numbers. To put that in perspective, more than one new franchise system started up every day for past two years, leading to the largest attendance of any International Franchise Association conference in the organization’s history. This year’s convention in Las Vegas brought a crowd of over 4,000 to the three-day event.
2017 is the year of the emerging franchise brand. Emerging brands made up an estimated 90% of the attendees at this years conference. The most common definition of an emerging growth franchise brand is one that has less than 5 years experience and less than 25 locations open.
” alt=”IMG_4015″ width=”705″ height=”529″ />According to FranData, there are now over 3,800 franchise brands in operation and our industry will grow well past 4,000 in 2017. Of those, less than 680 have over 100 units. Less than 90 of that group have been in franchising for less than 10 years and many of the larger brands took decades to reach 500 or more units.
The message is clear: the market for franchising is growing and so are the options a franchise buyer has. Each potential franchise owner can pick from a much larger number of franchise systems, making franchise recruitment much more competitive. Despite a number of positive trends that favor franchising, the average emerging brand or mature brand that is re-emerging is facing a number of challenges to jumpstart growth momentum.
Here are our key takeaways from this year’s conference:
The Story Always Stands Out: At almost every session we attended this year, talk focused on how critical storytelling has become. From discussion of website design, to sales process to targeted videos and Facebook advertising, the story is the key element that makes an impact.
Franchise buyers – and we estimate there are at least 12 million potential buyers in the country at any time – gravitate towards the brands with the stories they can best relate to. That’s the power of a well-told story: you don’t realize you are being sold to because the content is interesting, helpful and relates to your own interests.
Storytelling dominates recruitment website design, dramatically changing the way smart franchise development teams are using video and text, which then translates to every level of the sales process. As humans, we use stories to make sense of the world around us, relate to one another and make decisions.
Take a critical look at your website, the video you use and all of your written materials. Are they full of bullet points, catchy marketing slogans and skimpy of detail? Chances are you’re alienating a large number of potential franchise buyers by bombarding them with messaging that screams that you are a desperate salesperson who is lurking behind your form, ready to pounce on an unsuspecting buyer.
Strive to unpack your brand through the use of storytelling techniques that answer common questions about your franchise opportunity, while also revealing the integrity behind your company and the authenticity of your actual owners. If people can relate to you through a well-told story, you’ll garner a larger share of the potential market. If you don’t someone else will.
Persona Marketing Takes Center Stage: We were pleased to see some sophisticated brands beginning to adopt persona marketing, as we believe this is the most important – and most impactful – franchise development trend for 2017.
Persona marketing is simply identifying the type of buyer you are targeting and building a profile that is as specific to this type of buyer as possible. A typical franchise system will have 6-8 of these profiles. For instance, Marco’s Pizza targets immigrant buyers who are often 2nd generation Americans and whose parents might have owned hotels or Subway franchises. They also target veterans and existing food service managers who want to move up to ownership.
For each of these specific groups, develop a marketing strategy that consists of documentary videos, blog-style articles, email-targeted PPC and Facebook ads, email campaigns, segmented retargeting campaigns, lookalike campaigns and dead lead emails. The messaging and value proposition for each group of buyer types are different – and likewise you will need to position your brand messaging in terms that make sense to each individual buyer type in ways that are relatable and emotional. If a candidate wants to own a family business they can turn into a legacy for their kids, they need to be able to envision this dream as a reality, and they best way to do this is to see or read about others who have done so in the past.
This type of marketing switch can impact your recruitment website and overall marketing strategy, making it much more complex but also higher performance.
Website Opt-In is Rapidly Changing: Traditionally, buyers have filled out a website form with a number of required fields to opt in, but now buyers have many more ways to opt in.
Forms today are much shorter than in the past, with the preferred form just having fields for name, email, phone and area. Every additional field you add to the form reduces the number of leads you gather. In the “Lead Generation Tactics That Work” roundtable, Peter Lindsay from Sport Clips mentioned how shocked they were that leads spiked when they took off the ‘how did you hear about us’ field. Not only is most of the info not accurate, the extra field just kept people from filling the form out. Our suggestion: take it off yours if you have it!
Paul Pickett from Wild Birds Unlimited explained that he now makes the phone number nonrequired on his forms and that he has seen an uptick in both the quality of information and the quality of leads as a result. Try experimenting with making some or all your fields non-required. Buyers expect you to pounce on them when they fill out a form and serious buyers don’t want to lose control of the conversation.
Which leads us to phone leads – it is shocking that most systems don’t have trackable phone numbers on their recruitment websites. Phone leads now make up an estimated 25% of all leads and phone leads close at twice the rate of web form leads. Mobile device users often prefer to call – it just takes a single click on your number – and serious buyers with high investment ability don’t want to give a salesperson any information they don’t need to.
Lastly, text-opt in is popping up as a viable way to engage buyers. Using a commercial text service like the one we are fond of – textrequest.com – and putting a ‘Text us a Question’ button on the website, primarily for mobile visitors in an effective way to engage with potential buyers. Raj Bhatt, Co-CEO of Woops! Macarons, mentioned they sold a franchise to a prospect who used the text service to ask about how Woops! compared to a competitor.
Rethink your opt-in strategy. It is clear that the conventional wisdom that ‘real buyers will fill out the form’ simply isn’t true. They just don’t opt in unless you make it easier for them.
Crisis of Trust for Franchise Sales: With tensions in the country high, we live in an age of distrust. Skepticism is at an all-time high, and the distrust of institutions certainly trickles down to a wariness of being sold to. Monday’s Marketing and Technology Summit speaker Daniel Levine termed this a “Crisis of Trust.” Consumers (and particularly potential franchisees) don’t want to be sold to; they want to believe in something. This is especially true of the millennial buyers that are flooding the franchisee market today. They’ve grown up being blasted by media and commercial pitches, which has created a deep rooted distrust and unique ability to know when they are being sold to. This makes the job of franchise recruiters particularly difficult.
How do you combat this “Crisis of Trust” we find ourselves in? By being real and transparent. Gone are the days of the sales pitch and marketing material filled with corporate jargon – now recruiters, and the brand they represent, have to be authentic to the point in which skepticism can be easily defeated. This is why sites like Yelp! have become dominant – we don’t trust companies, we only trust each other. The organizations that are honest and upfront about who they are and the mission that they strive for will shine.
Your franchise recruitment website has to be transparent. From documentary videos about the actual lives of your franchisees – not forced testimonials – to pieces on the culture and atmosphere that exists at your company, to crowd sourced footage from your franchisees and employees across the system, all marketing material must be authentic. Striving for a greater purpose, beyond the dollars and cents, shows a care for the larger world and can fight the distrust in your potential franchisees minds. We have to go into conversations now knowing that this skepticism exists, and we have to actively battle it.
Video For Franchise Development is Essential: The use of video in your franchise recruitment process took on an unprecedented level of attention at this year’s IFA. Finally, the sessions are no longer trying to convince people to use video, the discussion has become what kind of video to produce and how best to use it. With new statistics out on how video will soon be 75% of internet traffic, those franchise recruitment sites that still don’t have video are now irrelevant. So it was refreshing to see the focus turn to how to MAKE and DISTRIBUTE the right kind of video.
Video is likely the key tool to fighting the mistrust mentioned earlier. No other form of marketing can represent the feel, emotions and culture of your organization quite like video can. Franchisee documentaries, which segment out the types of franchisees you’re recruiting – whether it’s the big, multi-unit franchisee, the father or mother looking to build a multi-generational business for their children, or the burnt-out Corporate America conversion – they speak different languages and we need to communicate differently to each of these. In all likelihood, your franchise system has successful, engaging franchisees that would shine on camera and be immensely relatable through a well-produced documentary. These are the kinds of emotional connections that glow with authenticity. Get away from mere testimonials, and start diving deeper. Engage with your franchisee base to crowdsource video from them, creating montages of their lives, and providing genuine glimpses at what it’s like to be a franchisee in your system.
So while we know we have to set aside a portion of our budget to produce video and fight skepticism, how do we make sure these videos are being seen by our prospects? There was exciting conversation at IFA about the success people are having in getting their video distributed and seen. While YouTube remains the number-two search engine in the world for a reason, rates for the duration-watched on well-produced videos are skyrocketing. We’re seeing a flip from the mini videos of Vine (now dead) and Instagram (now allowing much longer video) and the numbers are showing people will gladly watch extensive amounts of video if they enjoy the subject and relate to its message. This will especially ring true for your potential franchisees – a highly captivated audience because of the size of the buy they’re considering.
Facebook is taking advantage of the rise in duration of videos, now giving greater preference in their algorithms to longer videos that are being watched. This means that for successful distribution of your videos, you need to be devoting resources to both YouTube and Facebook. More and more franchisors are finding leads through Facebook this year, and housing your videos and optimizing them correctly on Facebook is key to keeping your brand top-of-mind. Facebook is also starting to rival YouTube for the analytics they provide on how people are watching your videos, a trend that can only benefit marketers and recruiters. So make sure you’re not just producing video for the sake of having video – this is a total waste of resources. Be intentional about how you want to portray your franchisees and your company’s culture, and how that might convey on video. Along the way, be mindful of how this video will be used, where it will be distributed, and then pay close attention to the numbers you get back from YouTube and Facebook on how those potential franchisees are consuming your new video.
Google Changes to SEO: Google continues to roll out changes to search engine rankings that affect your website. The top 3 for this year:
1. Mobile-first indexing. Google is now indexing the mobile version of your website and using its sitemap over the desktop version. With mobile visitors making up almost 60% of searches on recruitment websites, this is important. Newer sites with cleaner, more mobile friendly architecture and fast loading pages that still offer up the full scope of content will increase in rankings and poor mobile performers will continue to drop.
2. Voice-driven search is increasing. Google reported that 1 in 10 searchers are now using voice-driven search to interface with search engines. This is important because the language we use when we speak is subtly different than the language we use when we type in search queries. You might need to expand your keywords and content to map out additional terms so you cover both types of searches.
3. Page length still important – Google suggests a minimum of 1500 words on a single page to gain ranking. A good bit of current web design trends are going to more visual, ‘bootstrap’ design, which fewer words and more photos. These new sites look nice but perform poorly on rankings. Longer, article-format pages still influence buyers and rank higher. Resist the style-over-substance design movement and give your prospects longer pages. You’ll be rewarded!
More Divers Buyers: diversity is playing a huge roll in franchise development this year. Up to 55% of franchise buyers this year could be from ethic or racially diverse groups and we’re seeing a newer class of highly capitalized and highly skilled buyers entering franchising.
Does your marketing reflect an inclusive and diverse culture or when a prospect looks at your recruitment website do they see white guys as owners and brown people in employee positions? This can be a real turnoff to these buyers. Speak with them, ask their advice and invite as many into your process as you can; they are the future of franchising.
Facebook Advertising Evolves: One of the newest trends for lead generation is coming from Facebook’s new and constantly evolving ad platform. Google and Facebook have entered a cold war for advertising platforms and Facebook is beginning give Google a cost-effective run for its money.
Many savvy marketers are getting good results from targeted Facebook ads, promoted posts and lead form ads. If you’ve tried Facebook and not gotten good results, try again. That’s turning out to be a very successful lead generation source for 2017.
If you attended the IFA conference, what were your key takeaways?
As the number of younger franchise buyers surges, franchise salespeople still don’t know how to connect with them
Younger franchise buyers are flooding the market these days, and the franchising conferences – from Franchise Leadership and Development Conference (FLDC) to FranTech — spent some focused time exploring that reality. Smart franchisors see the benefits of recruiting millennial entrepreneurs. They appreciate the statistics — ubiquitous at the FLDC — which say that buyers in their 20s and 30s are on a steep increase and will bring creativity, energy and enthusiasm to their franchise systems.
Franchisors’ efforts to recruit millennials, however, are all wrong. As evidenced by companies’ (like BuzzFeed, Facebook, Google and Amazon) investment into video, we millennials have a preference on how to communicate, and we gobble up video. Even though video on franchise development websites has risen 20% — up to 60% this year — that’s still an extremely low percentage (it’s 2016 people; what are the rest of you doing out there?). Sadly, the way presenters described the video on their sites reeked of corporate misunderstanding.
Authenticity is the key
Authenticity has not only been the catchy phrase of the election cycle; it also represents an idea and skill that we millennials have been prepped to sniff out in an instance. Your corporate videos of half-enthused franchisees make us feel entirely disconnected from your brand. We simply won’t watch those videos and will be ready to move on to the next idea. We want to have a connection with our work. Study after study has shown that millennials want to BELIEVE in what they’re doing and make sure that their life work has meaning and purpose. We’ve been blasted with advertising and constant media since we could understand language, so we don’t want to be sold something; we want to identify with it.
The constant theme when discussing video on websites was “testimonial videos.” Creating these videos usually happens like this: wait for your annual convention, set up a camera and a backdrop with your logo on it, shove as many of your franchisees in front of the camera as possible and force them to say nice things about your brand. If you go to a conference like the FLDC and hear that you need more video to attract more millennial buyers, and you force this type of video onto your website, then you’re actually TURNING AWAY those buyers.
This is why “testimonial” videos will always come up short. We seek out pieces that we can connect with. Empathy drives action, and when you’re communicating with millennials, this needs to be at the forefront of your thinking. Produce videos that are meaningful and allow for actual connections with the video subject’s life. These deeper connections are necessary to franchise buyers, and if you think you’re establishing connections through mere testimonials, you’re fooling yourself.
How do you get video right?
The value of emotionally-relevant video is really starting to bubble to the surface in franchise development. Smart, forward-thinking brands like ChemDry are stuffing their YouTube pages full of relatable, authentic documentaries. We get to know real people (who happen to be franchisees) and the way the brand, to which they’ve dedicated their lives, has shaped who they are. When a company as storied as AAMCO, or a company as new and fresh as Class 101 create videos like this, viewers can picture themselves as franchisees because they empathize with the human qualities of a Lou Fizzarotti or a Karen Feamster. I’m excited that brands like PostNet are not only making quality video the lifeblood of their franchise development web site, but they’re also producing videos that speak to people in a real way.
When you watch these sorts of videos, think about how much more emotionally engaging they are compared to typical content marketing. At the end of the day, emotion triggers action and pieces like these documentaries can be the glue your campaign needs to hold all the numbers together.
There’s an obvious reason the vast majority of franchise development sites lack this kind of video: it’s really hard to produce. But the best franchise developers are already thinking about their candidates in the right way – they get to really know them, make sure the right fit is there, and hold their hand through a massive life decision.
Now, think about that in terms of video. Real franchisee profile videos and documentaries take that kind of dedication – it means getting to know a franchisee, spending TIME with that franchisee and really digging in to see what motivates and inspires them. It’s storytelling on an empathetic level, and it really takes actual filmmakers to pull off such a project.
We love interesting franchisees who are doing amazing things within their franchise system. It’s so inspiring to run into franchisees – from boomers to millennials – and to hear their stories, see their environment and experience the businesses they’ve built. It’s these stories that we 20- and 30-somethings crave when making such an emotional decision like buying a franchise. If you’re looking to improve the way you speak to this exploding group of new franchisees, we’d love to discuss it with you.
Gradual growth, record demand and younger buyers force change in franchise development
It’s hard to believe it is the 18th year of the Franchise Leadership & Development Conference (FLDC). From humble beginnings with fewer than fifty people, the event has grown to become one of the premier places for franchise recruitment professionals to learn about the craft behind growing franchise systems.
This year’s event set a record attendance level, with more than 450 attendees and more than 200 franchise companies participating in panel discussions, round table talks and vying for the coveted Star Awards for top performance in Franchise Sales.
2016 has been a good year for franchising, and across the board, most brands saw increases in development. We estimate that there are more than 12 million prospects in the U.S. researching franchise ownership, and according to the International Franchise Association, franchise brands recruited an estimated 15,000 new franchisees this year. There are also record numbers of franchise systems now, with more than one new franchise brand launching a day in 2016.
All is not rosy, though.
The upcoming presidential election has cast a cloud of uncertainty across the country, and many prospective buyers appear to be standing on the sidelines, waiting to see what transpires. The sharp increase in the number of franchise opportunities on the market has diluted the number of prospects for each brand, making lead generation much more challenging. There are simply more choices now, and many new businesses are attractive when compared to more mature brands.
According to FranData, who presents a state of the industry report every year at this conference, small bank lending for franchise purchases is getting harder to come by and there is still some uncertainty about the economy, keeping away many potential buyers.
There are several bright spots: franchisors are creating breakthroughs on several levels, and we are seeing much younger owners opting for franchise ownership.
Here are our main takeaways from this year’s conference:
It’s all about the story. At nearly every session, we heard recommendations to use more content. “It’s all about content today. Content, content, content. Content is king.” There appeared to be a gap, though, in what this actually means when it comes to franchise sales.
Here’s the deal — the story is the basis for human communication. We use stories to make sense of the world around us, to relate to other people and to make decisions. Content, just for the sake of content, is just noise. The wrong content can turn people away before you ever get to speak with them.
Your brand has a story, and there are always a group of potential franchise buyers eager to hear it. If you have a solid, well-told story that buyers can really relate to, you’ll earn conversations at higher numbers. If you fill your marketing pieces, website and digital content with bullet lists, cheesy marketing slogans, skimpy outlines and features and benefits selling, you’ll end up alienating the people you need the most.
Think about the common questions buyers have and how a typical entrepreneur would try to evaluate a business from scratch. What scope of information do they want and how can you provide article-format content that gives substantive information to these buyers when they are doing self-directed research? When it comes to recruitment websites, more is always better. Don’t be afraid to have longer pages and do your best to fully explain each concept using stories to make it come to life.
Think about the stories that make your culture, mission and people come to life. Get to the Why and How and When in your stories and be descriptive. Don’t skimp and resist the urge to shorten your narrative. Serious buyers have a tremendous appetite for detailed and specific information, and the story makes your opportunity come to life as well as making the numbers come to life.
That’s the power of a well-told story; you just don’t realize you are “being sold” because it is both interesting and helpful.
Your recruiting website is the home base for your story. The better job you can do moving people to your story-based recruitment website, the better chance you’ll have to increase your performance in an increasingly crowded franchise opportunity market. Don’t know how to do this? Do what most STAR award winners did this year and last — pull in an experienced outside resource to get your story correctly mapped out.
Younger buyers are entering the market. If you read our blogs, you know we’ve been focused on getting franchisors ready and prepared to deal with what is sure to be a staggering increase of younger franchise buyers. For the first time in the FLDC’s 18-year history, there was a significant increase in franchise buyers under 30 years old.
This is the first year of what should be several impactful years — the franchise buyer population is shifting and this is sure to have a dramatic impact on franchise recruitment in the next five to ten years. One well-known food brand commented that they had flown to Harvard to meet with a financially qualified buyer who was finishing up his last year as an undergraduate and was purchasing a multi-unit deal. He would have been 21 or 22.
Companies across the industry are seeing millennial buyers opting in and, in many cases, buying franchises. As a group, they see franchising as a smart career move and a far less risky option than a traditional startup.
Many franchisors, however, don’t know how to effectively reach these young adults. Josh Harrell, a very accomplished millennial filmmaker who works on our team spoke up at the “What’s New in Lead Generation?” session to comment that he was amazed at how many companies — including the panelists and majority of attending companies — seemed to miss the mark, misunderstanding how to market to his generation of entrepreneurs.
“As a franchise buyer, I’m looking for authenticity and transparency,” he said to the group. “I won’t talk to a salesperson unless you can communicate to me online and have the answers I’m looking for. I don’t want to be sold. I want to be able to connect with the brand on a personal level.”
He was commenting on how bad most franchise development video is and how far off point so much of the franchise recruitment messaging is for younger buyers. He’s spot on; buyers like Josh will just move on to a brand that understands how to connect with millennials and treats them with respect. His generation now makes up a third of the buying population, so ignore them at your own risk.
Your sales process stinks. Another shocker from this year’s survey report was simply that traditional sales processes are no longer working. In today’s market, you can’t work every buyer through a rigid sales process and expect to get consistent results.
Franchise buyers have a buying process — meaning they are in control of gathering content and searching for answers to common questions. A high performance recruiter today understands that every buyer enters the sales process at a different stage and takes the time to understand where they are.
If your salespeople answer the phone and vomit features and benefits on candidates before they’ve gotten to know them and really understand what they are looking to accomplish with business ownership, you’ve already lost.
Sales process discussions highlighted how small tweaks can produce big gains. Call response time, use of different opt in strategies for your website and communication tools in the sales process, changing the emotional pace of buyers and teaching recruiters to do a far better job of listening and storytelling all make a big impact on results. Don’t make the mistake of thinking your sales process is working. Underperforming? Don’t look to the lead sources as the issue. Our advice is to start picking your sales process apart and understand why prospects don’t buy.
Franchisors just don’t get video — at all. A positive note for 2016 was that video on recruitment websites increased from 40% last year to almost 60% this year.
We live in the YouTube era and if you’ve spent any time on a website, Facebook or Google, you know that video has emerged as a dominant medium for communicating concepts online.
Judging by the quality of video we saw on the sites for brands represented at the conference here’s how the typical franchisor responds to the need to add more video: They take a camera and a backdrop to a conference and trot out franchisees in logo shirts. They stand in front of a logo backdrop and say nice things about the franchisor. Watching these, you have the impression that what they say is forced and the franchisor is holding a gun to their head. They are rarely genuine and since they all look alike, they offer very little towards positive validation.
Don’t do this. Seriously.
If you are going to use video — and all indicators are that video content is the future of franchise lead generation — do it right and use video to illuminate your brand story, give insight into what a day looks like and use your franchisees in their native environments to voice their version of the value proposition.
Think of video as a small movie, heavily rooted in the story. Create documentary-style films about your brand that provide positive reinforcement of the decision to buy, and let what franchisees say and do speak for itself. Think story first; who in your system typifies the ideal candidate and who has a compelling story to tell? Spend time in the field with them documenting their story and work to create a living, organic library of documentary video.
What was the main takeaway from this year’s conference? Budget a lot more for video, possibly as much as you might spend on rolling out new websites every other year. Video creates unique and strong emotional connections with prospects in a way no other format can. Create a development strategy around video content as some leading brands like Chem-Dry and PostNet have and continue to publish new content on a regular basis. The payoff is huge.
Social media produces sales. Based on the feedback and questions in the social media for franchise sales session, recruiters and even some regular franchise development suppliers still don’t understand the role social media plays in franchise lead generation.
Yes, savvy franchisors are closing deals from Facebook and LinkedIn. Both of these platforms are giving Google a run for its money and both are working to develop loyal audiences who spend large amounts of time on the platform.
Facebook in particular, has really raised the bar on its advertising platform. Spending money on Facebook is smart; there are buyers for all types of concepts, and it is easier than ever to target potential franchisees based upon geographic location and with precision. Done correctly, the cost per lead on Facebook can be much lower than average.
That doesn’t mean the quality is consistent. Facebook is a different animal than Google, and the results differ. Where Google Adwords produces consistent results and also high quality results, Facebook requires different tactics to master. The big difference: on Google, prospects are seeking information. Intersecting a buyer when they are doing active research is an excellent way to engage someone. On Facebook, buyers are not doing research; they are much more often just reading the news feed and commenting on posts. When you advertise, you are creating awareness higher up in the funnel. You might intersect someone close to doing a deal, and you might intersect someone before they’ve considered ownership.
That doesn’t mean Facebook ads are a waste, just that you are reaching people before they are doing research. Luckily, it isn’t expensive and the brand awareness can help drive other marketing as well as generate leads directly. Don’t make the mistake of dismissing this channel. Tried it and not gotten great results? Get some help; we find Facebook campaigns take more work than other paid channels to optimize, even for experienced pros.
The important takeaway for LinkedIn? Use the sales navigator option, which, although expensive, allows your salespeople to send guaranteed in mails to target prospects. LinkedIn’s advertising channel is not robust nor does it produce consistent results, but thinking of LinkedIn as a prospecting tool really works.
Franchise recruitment websites are changing dramatically — again. We were happy to have two of our websites make the top five recruitments websites this year, the fourth year in a row. We believe the franchise recruitment website is the single most important component of your development effort; it is the first contact a prospect has with your brand and the better that first impression is and the longer you can engage that prospect, the better your development results will be.
The rise of video and the switch to mobile devices are changing the design and architecture of franchise recruitment websites in the year ahead. Expect to see video-driven sites designed for both mobile and desktop users. The sheer amount of video and text content needed to communicate a brand story has increased, and recruitment websites are changing to match.
Opt-in is also changing. Expect to see more segmented use of tracking phone numbers rather than forms (phone leads close at twice the rate of web forms) and expect to see some other forms of opt in, such as texting, social and auto-fill forms. The traditional lead form simply has too much friction to be successful on mobile devices. If you are stuck on using long forms across the board and you are not deploying better technology, you might be missing the bulk of your buyers.
Franchise portals do work. Franchise portals have been a mainstay of franchise lead generation for decades. We use them on every account we manage and believe in them. There was a sharp rise in closes coming from franchise portals this year, a reflection of how smart franchisors are integrating portal advertising with their organic efforts to generate leads.
There are a few reasons for the spike: Ethnic, non-white potential franchisees increased. This number was up to 39% last year and could be over 50% by the end of 2017. Buyers not native to the U.S. turn to portals as an easy way to discover several brands in a segment.
Franchise portals themselves have not remained stagnant; almost all portals have redesigned sites, deployed sophisticated analytics and progressed towards helping buyers make more meaningful connections with specific brands.
While we don’t think you can grow a brand using just portals, you should always have some of your budget allocated to them, with at least 2-3 portals in your mix. This creates important visibility and the number of buyers who see your brand on a portal then Google your development website is increasing. Don’t make the mistake of cutting off portals; that is sure to reduce sales results.
Duh, you have to have an item 19. Franchise buyers expect financial representations. The more sophisticated the buyer, the more important this becomes. It is shocking that some brands still don’t have an item 19 and the news from the FLDC is clear — you will have a substantially harder time recruiting good buyers without one.
Culture acts as an immune system. The culture of your franchise system is playing a more influential role than ever before. Franchise owners today want to make money, but they also want to be part of a team of people with whom they enjoy working. Culture is your immune system towards problems that can undermine performance and destroy the relationship between owners and franchisors.
The takeaway this year is that franchisors need to do a much more substantial job articulating their culture both in marketing materials, videos, text, websites, emails and in-process content. Top performing franchisees who understand what your culture is will be attracted to your brand over others.
Have a fast-paced, entrepreneurial culture? You’ll attract people that fit in. Have a culture focused on helping others? Those buyers are looking for you. Many buyers today are choosing brands based on culture first, so don’t overlook this on your website.
2017 should be a slightly better year than 2016, no matter who wins the presidential election. The number of brands has skyrocketed and although the population of potential franchisees has grown, becoming both younger and larger, there are more choices than ever before. This means that you’ll have to spend more on marketing to help your brand stand out, and as always, what has been working might not work going forward.
Think about how you communicate your brand story and use video to do that. Most of all, rethink your franchise recruitment website. It is a great time to be in franchising and the future of the industry is stellar — make sure your brand is well positioned to take advantage of this growth.
Have questions about this year’s conference or any of these takeaways? Reach out to us and schedule a call. It might help you create a breakthrough this year!
Interest in franchise opportunities continues to rise and franchising is more diverse than ever before
By Thomas Scott, CEO of Brand Journalists
The International Franchise Expo is the largest franchise trade show event for potential franchise buyers in the world. This year’s attendance was one of the largest on record, and the event has seen attendance climb in recent years.
More than 400 franchise companies attended, and although the show isn’t fully representative of the franchise industry, it can be a great place to gauge the health of the industry, see what franchising trends are evolving and get a feel for the size and scale of the franchise buying population. At this year’s IFE, participating brands included those from all investment levels, a wide variety of industry segments and full- and part-time owner participation requirements
In the era of self-directed online research, franchise buyers are still interested in seeing what’s out there and meeting a person face-to-face.
Here’s what we took away from the 2015 IFE that you might have missed:
The franchise industry is growing
Almost 800,000 franchise locations and more than 4,000 franchise brands now operate in the U.S. According to FranData, there were more than 365 new franchise companies in 2015 alone, a trend that isn’t going to slow down any time soon. Franchising produces more than 3% of the GNP and outperforms all other sectors on job creation.
Record numbers of potential buyers are in the market today, and franchising is healthier than it has been since the economic downturn and only getting better. Franchising continues to be one of the best options to help people participate in the economy at their full market value.
Brands that focus on niches and authenticity on the increase
While there were more burger concepts showing at the IFE than any other segment, as well as a big presence from many home service brands and iconic franchise systems, what really jumped out this year, more than previous shows, were the number and diversity of niche brands offering authentic goods and services.
I stopped by a French Macaron franchise, a ramen noodle shop franchise, a Halal franchise, several Korean food franchises and some really intriguing non-food businesses. The diversity is refreshing; franchising is, after all, more than burgers, chicken and pizza. For millennials, buying a niche brand that serves something unique in a market is attractive. Millennials are very entrepreneurial as a group and for them, unique is better than mainstream.
The future of franchising might not be with the mega brands with thousands of locations; it might be that a much larger number of smaller brands prosper and dominate a small niche. Not every franchisor needs to have 500 or 1000 locations — a small, regional chain might work well with just 50 or 100 locations. Considering that the franchise industry is joined by hundreds of companies every year, the membership of the IFA is sure to increase in the decade ahead.
The volume of potential franchise buyers is increasing
More people are researching franchises than ever before. Although the franchise industry only recruits 14,000 to 15,000 new franchisees a year, we estimate that more than 12 million people search for franchise ownership information at any time. Clearly, there is room for ample expansion of just about any brand that has good unit economics, a stable segment and positive franchisee validation.
Trade shows have largely fallen out of favor as a lead generation source. They are expensive and in the era of self-directed online research, buyers can now easily gather helpful information on just about any brand they get curious about. Digital lead generation is both less expensive and more productive. That said, the IFE has seen a rebound over the past few years and traffic at the center was high when we visited. There were many serious franchise candidates mixed in with the curious in the aisles of the Javits center.
This makes sense as record numbers of immigrant buyers are seriously evaluating US brands and the Affordable Care Act has given entrepreneurs access to health insurance, which allows them to leave a traditional job with a benefits package. Millennials are researching ownership in large numbers and financing has finally risen to reasonable levels, making ownership possible for a larger number of candidates.
Holding a trade show gives serious candidates something self-directed research doesn’t — access to the source of information. Trade shows are great to see what is out there, and a lot of prospects we talked to were already well into the sales process with a specific brand. They were coming to the show to meet the franchise staff in person and were using it as a way to check out other concepts. Trade shows may not be the most cost effective way to recruit buyers, but they still have a place in your lead generation plan.
Baby boomers are leaving the room
Now that millennials make up the largest percentage of potential franchise buyers, baby boomers are diminishing in number. There are really 3 distinct groups of franchise buyers in the market today: baby boomers (those born before 1965), generation X buyers (those born from 1966 to 1980) and millennial buyers (those born after 1980).
For the first time at an IFE, it appeared that baby boomers were in the minority. Most were generation X buyers, and we saw many more older millennial buyers than expected. Baby boomers are no longer the future of franchising; we’ll see more drop out of than enter into business ownership in the next decade. Generation X buyers, who started the self-directed research push, make up the majority of inquiries, and millennials are just starting to gather enough financial resources to purchase franchises.
Although baby boomers were raised on traditional, promotional advertising (like trade shows), the other two groups of buyers have different attitudes towards this form of advertising. Generation X buyers witnessed the birth of computers and the Internet and pride themselves on gathering a much wider scope of information than baby boomers. Millennials expect to be in control of the sales process and recoil from most traditional advertising, making trade shows a challenge for most franchisors. Expect to see the approach to trade shows evolve as fewer baby boomers attend these shows in the future.
Although the overall economy may not be as strong as we’d like, the state of franchising is healthy and robust. As seen at this year’s IFE, with record-breaking attendance, the industry keeps growing and evolving as the demographics of the potential franchisee shifts and those interested entrepreneurs research and evaluate franchise opportunities. If you haven’t attended the IFE as either to walk the aisles or have a booth, we recommend giving it a try. It does produce sales — although not every franchisor will generate a sale — and it can introduce your brand to a much larger audience.
Leverage prospects’ emotional connections to your brand and unlock results
By Josh Harrell, VP of Video Strategy
When Keith and Chris McBrayer opened their first Captain D’s franchise two years ago, they were overwhelmed by the support of their local community they loved so much, by the business they brought in, and ultimately, by fulfilling their father’s dreams of opening up his favorite fast food restaurant just before he passed. They opened a new-design Captain D’s in a market with fewer than 12,000 people, and it was a huge success, breaking the all-time record for new store sales for the seafood franchise. In the words of a local TV reporter, “It was bigger than the opening of WalMart.” For a small community, that’s big praise indeed.
It’s a story they tell with emotion and love, not only for their family and community, but also for the franchise system with whom they choose to partner.
Video is a completely unique art form. No other format can combine the use of different types of media – visuals, audio, editing – to efficiently produce the impactful emotional response that video can. Video conveys the emotional success story of the McBrayers, but it goes beyond having an audience merely connect with a narrative or merely relate to an experience. A well-done video can give an audience the tools to visualize their own dreams, as well as provide the confidence needed to turn dreams into realities. When it comes to franchise development, however, video lags far behind the rest of the marketing world in how companies leverage it to connect to their audience base.
Video in marketing online is quickly becoming ubiquitous; video viewing will be 80 to 90 percent of all Internet traffic by 2019 according to “Cisco Visual Networking Index: Forecast and Methodology, 2014–2019,” a white paper presenting the details of the Cisco VNI global IP traffic forecast and the methodology behind it. The forecast is part of the Cisco Visual Networking Index™ (Cisco VNI™), an ongoing initiative to track and forecast the impact of visual networking applications. Franchise development agencies must get with the game and catch up to the curve. At the IFA last month, the lack of video – and especially the right kind of video – became a key takeaway for the industry.
So, just how dominant is video, and how can franchise development teams affordably produce the right kind of video to a consumer base who is becoming more tech savvy every year?
Online video is king
The statistics on the growing use of video have become redundant. Whether it’s a Socialnomics study that shows 2/3 of all content viewed on mobile devices will be video by 2016, or the current 8 billion video views a day on Facebook or the 500 hours of video uploaded to YouTube every minute, online video continues to grow at an incredible pace. Still, we see myriad franchise development departments that have no video in their current marketing efforts; there’s no explanation for it! Whether you’re marketing to the seasoned, multi-unit operator or to the growing millennial class (soon the dominant group to whom franchisors will market), video has to be leveraged.
Outside of the franchising world, video creators are constantly pushing online video boundaries. From long-form series produced by media startups like Vice or online giants like Amazon and Netflix, to challenging the limits of technology with the virtual reality video being created by Sony, Samsung, and many others, online video is an exhilarating, constantly evolving world. Franchisors, though, still rely on an old, tired practice: setting up a backdrop at a conference, sticking a few franchisees in front of it and forcing them to say something nice about the brand. This is a complete waste of resources and shows a lack of ingenuity and ambition.
While old media cost a fortune to produce—and an even larger sum to get the ratings through television advertising—online channels, such as YouTube and Facebook, are seeing a massive surge in the results they’re creating through their own advertising platforms. For users, distributing hard-earned content via this medium is more affordable, plus you’re able to receive a treasure trove of data from the online channel. Pair that data with the ability to geo-target and remarket to your ideal audience, and you have the ability to really keep the heat on the sales targets.
Video as an emotional connector
Smart businesses are seeing the impact that connecting with their customers’ emotions can have on their own bottom line. A recent Harvard Business Journal (HBJ) article reported on a study that showed that hundreds of companies have experienced enormous growth in new account and same-store sales because of their scientific marketing efforts that appealed to their customers’ specific emotions. “The most sophisticated firms are making emotional connection part of a broad strategy that involves every function in the value chain, from product development and marketing, to sales and service.”
When making a decision – especially a decision as important as buying a franchise – prospects are affected by two factors: the head and the heart. Our head needs to tell us that the math adds up and it is a good investment. Arguably, however, the stronger factor is the heart. We must have an emotional connection with a purchase.
Intuitive franchise development departments know this and utilize it. The HBJ study revealed that buyers are motivated by a number of emotions – standing out from the crowd, having a sense of freedom in their lives, or needing to feel secure, for example. A franchise company must first identify the unique motivators its specific brand produces. When video, then, is used to connect these motivators to viewers through an emotional response, it becomes an extremely effective tool.
The founder of Juice Bar, John Hunt, wanted to be a healthier, better person when he went on his first juice cleanse. His life was transformed by his healthier diet and he couldn’t wait to share this with consumers, which was the genesis of his rapidly expanding company, I Love Juice Bar. A video transfers this emotional trigger to viewers, which gives them a taste of John’s transformation and helps them connect with a brand in a way that only video can achieve.
Authenticity is the name of the game
Merely shooting a few testimonials or some bland corporate images is a waste of time and money because it’s devoid of authenticity. Take it from Vimeo’s Head of Brand Solutions, Jeff Hurlow: “Many brands are now thinking about digital content from the entertainment perspective. Before people would just generate video as an excuse to put pre-roll in front of it, or to be background for their ads and branding. For a variety of reasons, that has become a less effective tool for brands. There’s some really innovative ad agencies we’ve been working with that are looking to build authentic films that people are interested in watching.”
This striving for authenticity is crucial when connecting video to emotions. Today’s consumers are blasted with media every minute of the day, and the only way to truly capture someone’s attention (and more importantly, their feelings) through media is by making them stop in their tracks because of an engaging, well-produced video.
Documentary storytelling is ripe for this. Quality documentary work pairs nonfiction with entertainment. In the franchising world, this could be telling the story of a franchisee in the fashion of the McBrayer Brothers or AAMCO franchisee Lou Fizzarotti, a charismatic New Yorker whose passion for the car repair business and the impact it’s had on his life is evident from the documentary profile piece. This is why video hosting platforms like YouTube and Vimeo are pairing talented filmmakers with intuitive brands.
While a common assumption is that the millennial generation feeds off of short-form content, the numbers suggest otherwise. Forbes writes that the reason behind the success of the aforementioned Netflix and Amazon, along with other long-form publishers like Vice and podcasts like Serial, is because of engaging authenticity through nonfiction storytelling. Gimlet Media’s Chief of Staff wrote in the Forbes article, “It’s no secret that millennials place a premium on authenticity. Unsurprisingly, we see this phenomenon at play in the realm of content, where [millennials] actually rank authenticity as more important than even subject matter.” So let’s quit forcing testimonials and pushing generic, stock images. When engaging, authentic storytelling is paired with an interesting subject – like the McBrayers or Lou Fizzarotti – the result is those emotional connectors that the Harvard Business Journal saw skyrocket businesses’ sales.
The raw, emotional power of documentary video can have a tremendous impact on a franchise development team’s ability to both generate quality new leads and engage captured leads so they go further in the sales process and make better investment decisions. During the next couple of years, the quality of your video storytelling will make or break your sales results, so it’s a good time to start thinking about how you can up your game.
With video’s omnipresence online, the franchise sales world has to catch up to the rest of the marketing world. Forming a video plan and strategy is easier than many think; it just takes a desire to improve and to tell stories.
We’d love to show you how your franchisees’ and your brand’s stories provide emotional connections to potential franchisees. We can also show you how the right kind of filmmaking and video distribution campaign can have a massive effect on the way you speak to prospects.
Changing customer expectations and rapidly emerging technology creates both an opportunity for growth and a performance gap for franchise systems
2015 was a great year for the franchising industry and in the early months of 2016, the next few years look like an even better time to be a part of such a thriving industry.
According to FranData, last year there were more than 385 new franchise companies starting up operations; that’s more than one new franchise system a day. That’s an historic moment for franchising and a bold sign of what lies ahead.
Robert Cresanti, President and CEO of the International Franchise Association opened the 56th annual conference in San Antonio – one of the largest on record with these stats:
The franchise industry now has 795,933 establishments open
These business produce over $944 Billion a year in sales
Franchising now makes up over 3% of the total US GNP
Most importantly, the franchise industry has significantly outpaced corporate America when it comes to job creation, adding over 1 million jobs in the past five years. The franchise industry is strong and well and is one of the brightest spots in our economy.
For anyone working in franchise development and tasked with growing an existing franchise system, there are some really bright and hopeful signs of life ahead:
Financing is coming back and there are finally good loan programs hitting the market – this has been the top reason that many prospective owners have decided not to buy and its resurgence is huge.
Search interest for franchising is growing – there are record numbers of potential franchisees looking for ownership information online.
Millennials are beginning to enter the industry and are having a huge impact. Millennials are far more likely to buy a franchise than previous generations and they are challenging the status quo, disrupting traditional franchise recruitment systems and forcing the industry to reinvent itself.
Mobile, web and social technology is evolving and the knowledge gap between raw interest in franchising and detailed ownership information on specific brands is smaller than ever before; franchise companies are finally starting to understand how inadequate most recruitment marketing is and are making strides to connect more deeply with prospects.
This year’s conference delivered on many fronts. For CEOs, franchise development executives, franchise recruiters and franchise development marketers, here are our key takeaways from this year’s conference:
Key Franchise Sales Takeaways From the 2016 IFA Conference:
The millennial franchise buyer is forcing change in franchise development departments: according to FranData’s President and CEO Darrel Johnson, 60% of Millennials identify with entrepreneurship and would be open to owning a business. They simply see the Baby Boomer path of going to college, getting a degree, working for a large company and retiring on a pension as completely unrealistic and unattractive. In fact, they see this traditional view of a career path as foolish and highly risky.
Millennials are much less risk-averse and much less afraid of failure in a business. Weaned on startup tales from Silicon Valley and the dot.com rage, failure is a badge of honor and Millennials are simply not afraid to jump in and push for results.
Because they now make up 30% of the population and make up the largest segment of the workforce, this is an important strategic shift for the franchise industry and over the next decade, these buyers will dramatically change the face of our industry. As many development executives stated at the conference, working with Millennials is a challenge and they behave differently than older generations.To get better results, a smart franchisor will take the time to understand how a millennial buyer views the world and get a grasp on what expectations they bring to the table. The more closely you can align with these, the better results you will see. This group is just now entering their 30s and they are enthusiastic about jumping into franchise ownership. Here’s some advice from the conference to help you understand your gaps:
Millennials use technology at a much higher rate. While this isn’t a surprise, what might be is that the way they use technology is different. When it comes to franchise recruiting, this means rethinking mobile versions of your franchise recruiting website, making it easier for the typical millennial buyer to do research and advertising in a much more authentic and detailed way. The best way to scare off Millennials is to push traditional advertising and marketing messages to them – they just tune out.
The millennial buyer doesn’t like your sales process. Chances are, your current sales process is far out of alignment with what you need to improve chances of recruiting more Millennials. As a group, Millennials avoid salespeople and anything that smells like a sales process – you’ll have to earn their trust by being fully present, accessible and focused on them as individuals, not just a stat on your weekly pipeline report.
The types of content Millennials gravitate towards is radically different than anything you have in place. Video, details, authenticity, conversational articles, unbiased reviews are all a part of the scope a Millennial expects to see on your website. Look at a dozen recruiting websites and you’ll quickly see there is a performance gap here that companies will need to address.
Your franchise recruitment website continues to be the most important component of your franchise sales efforts: If there was one uniform word of advice from every single franchise executive, it was this: if you haven’t spent time and money getting help to build out a high-performance recruiting website, you’ve already lost the development game.
The franchise recruiting website serves as a detailed home base a potential franchise owner visits to do research on your opportunity –this is also where a candidate makes the decision to buy or not to buy. There are very few specialists that know how to build high-performance recruitment websites and there are even fewer with a solid track record of performance.
A successful recruitment website should be designed to engage a prospect and keep them reading for 30-45 minutes. It should convert unique visitors to franchise leads at a high rate – at least 4% – and it should work well on both desktops and mobile devices.
Most importantly, it should be a living, breathing embodiment of your authentic brand story. Spending time on the site should create both an emotional connection to the opportunity and give a prospect helpful and detailed information that answers most common questions and removes any big objections. It should be designed to dominate SEO and have a platform for targeted content marketing.
Companies that roll out winning websites like these reap huge results and get a quick return on their investment. This is true of a small startup franchise brands like New York based Woops Macarons or Atlanta based Outback GutterVac.This strategy works for iconic and well-established brands like AAMCO, Chem-Dry or Captain D’s. Take a look at these websites we’ve recently built to understand what you should be doing to get better results.
The design of your site isn’t as important as the content. The lesson from this year is simple – get help designing and authoring the right type of content so that you can intersect your prospects and help them better understand the brand. The rewards are huge if you do.
Mobile usage is evolving much faster than franchise development departments: we passed an important milestone this year that you may not have noticed. For the first time ever, mobile visitors accounted for more than 50% of all web traffic. For franchise recruiters, this is problematic and once again, it’s time to rethink your strategy on how you convert and engage mobile visitors to your franchise site.
The industry prediction of where mobile technology is very clear: within a couple of years, we won’t be using laptops or desktops and we will only be using smartphones to access the Internet. Think about that for a minute – how prepared are you to deal with such a huge shift in the way people use technology? What’s going to happen halfway through this year or next when your lead flow begins to drop off and you can’t reach your development goals?
If you ask your marketing department about this, they will likely say your site is responsive, meaning that your site is designed to respond to the screen size the viewer is using (desktop, laptop, tablet or phone) and reorganizes the content to make it viewable on that device. In other words, this is the same website, just scaled to fit across the many different platforms.
That alone doesn’t cut it today – to be effective, you’ll need to think much further ahead on how a mobile user is using their phone to research and buy your opportunity. We often say that you’ve been fired from the first conversation with a prospect. Prospects now have a conversation with your brand on your recruiting website (see the point above) and the decision to buy is made before they opt in to talk to you.
The challenge in 2016 – and why you should budget for a redesign of your recruiting website – is that now we have two different audiences trying to have conversations with us using two totally different platforms. Making a one-size-fits-all responsive website that just ‘works’ on both laptops and mobile phones isn’t enough.
Video is now the gateway content for franchise sales and the type of video you need is much different than the video you have. Here’s an important stat from Lorne Fisher’s (CEO and Founder of Fish Consulting) presentation on using social media to generate franchise leads: according to Socialnomics, 2/3 of all content viewed on mobile devices will be video by 2018.
Two – thirds! At last year’s Franchise Update and Leadership Conference, the annual lead generation presentation reported that only 40% of the franchise recruitment websites reviewed had video. 60% didn’t have any form of video.
For the 40% that did, only a handful of franchise recruiting websites had the right kind of video. As we shift recruiting marketing to engage more with Millennials, the industry’s thinking about video needs to evolve.
Here’s what doesn’t work: video testimonials that looked like you pulled your owners out of a conference session, stood them against a wall and held a gun to their head. Watching these stiff and inauthentic videos, you get the feeling that a handler outside the frame said, ‘now say something nice about training and support’ or ‘say why you would do this again.’ Savvy buyers – and that is the only type in the market – can smell inauthentic marketing and they are quick to dismiss it.
What does work? Documentary-style movies. The type of film – not a video – that you might see advertised as a ‘short’ at South by Southwest. Shorts are authentic, interesting, story-based films that give insight into a topic. Usually 5-7 minutes long, these videos are interesting to watch in their own right and are very compelling. They also take a masterful storyteller to produce.
AAMCO franchise used this method to greatly increase lead generation and drive up positive validation by showcasing one of their long-time owners, Lou Fizzarotti. Captain D’s used this method to showcase two brothers who opened a top-performing franchise in West Point, MS, which was ‘bigger than Wal-Mart.’ I Love Juice Bar’s founder used this method for sharing his personal story of why he decided to franchise. Expect to see much larger usage of documentary videos for brand stories, franchisee validation and better ways to communicate with the YouTube generation as they enter the ranks of franchise ownership.
Video has the potential to smooth out validation and help people connect more deeply with the culture of a brand. Want to target some specific types of franchisees? You’ll be a lot more successful in hiring a documentary filmmaker to dig for the story that resonates the most. Documentary video is possibly the biggest lead generation trend of 2016.
The web form is going to go away: There, we’ve said it. Real franchise buyers don’t want to fill out your web form. You know this in your gut because you don’t like to fill out forms yourself when you go online.
Here’s the deal: franchise recruiting and most sales CRMs depend on a specific prospect’s behavior – they have to complete a form to request information. The form feeds information into your CRM and the salespeople can work the leads. The web form has been the sole source of opt-in for more than a decade but there is a really challenging trend that is going to disrupt your sales team in 2016: franchise buyers want to control the sale, they want to withhold information and they want a better way to opt in.
Think of it this way – forms are so 2010. Opt in – the moment of truth when an interested candidate raises their hand to say they are interested – is changing. Phone calls are now making up 30% of franchise leads on the many franchise websites we build and manage. Forms have gotten shorter and now contain only a minimal amount of information and the next frontier is text communicating in place of the web form or a phone call.
What’s going to replace this? Social logins, autofill scripts for email marketing, text opt-in, more diverse phone lead tracking and probably some ways we have not thought of yet.
These updates in behavior promise to break down barriers between a candidate and a recruiter but it poses real challenges for CRM companies who don’t currently have the ability to integrate non-form opt in. We’re back to manually entering lead info, which rarely works well.
Facebook and other social media platforms offer cost effective advertising options: My teenage daughters often remind me that Facebook is for ‘old people’. By ‘old’ they mean people over 30. You might lean towards LinkedIn as your preferred social network for generating leads but Facebook has improved its ad platform recently and managed in the right way, it is proving to be a viable lead generation source.
Jack Monson, Global Director of Manalto Social Media, spoke on tactics for generating leads with social media and said it best: “the days of having a dedicated Facebook page for development are gone. Today it doesn’t matter if you post something on your page – you have to develop, publish and promote content in the feed of your target prospects.”
He’s right – reaching potential franchise candidates on social media is less about what you post to your page as a status update and more about how to promote your content in multiple ways inside the Facebook news feed. There are a few ways to do this: by promoting posts that link to your franchise website and by creating targeted ad platforms
Diversity in franchise recruiting is becoming more of an issue: Gerald Fernandez, President and Founder of Multicultural Foodservice and Hospitality Alliance, gave an impassioned and highly practical talk on the growing importance of diversity in franchising. While his point was not aimed at franchise sales, it is still extremely important to consider:
39% of the country is now non-white. That percentage is growing rapidly and if you look around at the racial and ethnic makeup of our country, we remain a melting pot of cultures and peoples from all over the globe. Affluent immigrants are making up larger and larger percentages of franchise purchases; people fleeing global uncertainty see the U.S. as a bastion of unlimited opportunity and the franchise industry is very attractive.
The demographics of the U.S. are changing – African American, Hispanic and Latin, Asian, Middle Eastern and other non-white peoples have growing populations that should be better reflected in the franchising industry. There is more diversity at every level of economic and social class in our society than ever before. It is time we took the time to be far more inclusive on this front!
“If someone of Middle Eastern, Indian or some other diverse group looks at your website and they only see photos of white people or only photos that include people of color in service positions, you are turning those people away,” said Hernandez. His advice was practical – simply make sure your development team is diverse so it reflects your franchise prospects. Make sure your marketing is authentically diverse. Don’t use stock photos to force the issue – it is painfully obvious if you do. Push to recruit diverse franchisees and work hard to help them succeed. As our population grows and evolves, so will your base of franchisees.
Who’s doing an excellent job of this? Marco’s Pizza. That system has been one of the fastest growing pizza franchises for the past few years and it has done so by recruiting a diverse group of franchise owners. They are not so focused on recruiting existing multi-unit franchise owners as most brands are and have instead done an amazing job making themselves highly attractive to white and non-white owners. The focus on diversity is one of the main reasons Marco’s Pizza are succeeding and more brands should follow suit.
Persona marketing forces us to rethink PPC and SEM marketing: The average franchise company spends over $200,000 a year in marketing and advertising to generate and generates thousands of leads a year. Over time, a typical franchisor will have well over 5,000 lead records in a CRM.
How well do you market to this list? Do you send out emails on a regular basis?
One takeaway that you should consider researching is the advent of persona marketing. Everyone who uses the Internet is identifiable from the unique IP address they use. That’s what we use to track buyer behavior on our websites and it is what we use when we retarget visitors to our recruitment websites.
Google can often associate some specific information with that IP address; they can often associate a device type and an email address. Knowing this, savvy marketers can leverage a list like the one you have to get much more focused on how they influence people who have already expressed interest in your opportunity.
You can display specific ads – both PPC ads on Google and display ads – to any of those people on sites other than your own. You can use your list on Facebook to create relevant content for people in their newsfeeds. It’s a good kind of creepy and it works.
We’re doing much more of this for our clients this year and expect it to be an increasing trend as we going forward.
Franchise Sales Process tactics continue to evolve: Just as our core buyers are rapidly changing so is a franchise sales process. If you are still sticking to a rigid sales process for all leads, you are missing deals.
Savvy recruiters are learning to flex with the different types of franchise leads they receive. Get a lead from your website via an inquiry form? You might have a totally different process than someone that comes from a portal.
Get a lead that is younger and one that is much more experienced? You might deal with them in different ways, each designed to produce the same result. Millennial buyers might need more information than someone transitioning from a corporate career. You might need to move your FDD up or your application back. If you treat everyone the same, you’re only going to be successful with a small percentage of closable deals.
The type and scope of content you use in the sales process is also evolving. Stay true to the promise of franchise recruiting, which is: helping people make good, well informed decisions about franchise ownership. Do this by asking for feedback and listening to what prospects tell you. Experiment in small ways to tweak the process and always root decisions in the actual data, not your emotional or anecdotal view.
What to do with this information?
2016 and beyond should hold a lot of opportunity for franchise brands on the development front. The problems our industry has been focused on for the past few years are getting solved and the problems lurking over the horizon are likely issues you haven’t even considered yet.
As a franchisor, you have a decision to make: should I stick my head in the ground or try to get ahead of my competition before these issues lay waste to my development team?
Need help with any of these or want to talk to someone who knows how to affect change on each? Start a conversation with us. You’ll benefit even if you don’t engage us to help you grow your brand.
Brand Journalists CEO and well known franchise lead generation expert Thomas Scott was recently interviewed for Social Geek Radio by Deb Evans, President Deb Evans Consulting, and Jack Monson, Global Head of Strategic Accounts, Manalto, about the compelling case for documentary style video used in franchise development.
Here’s the transcript of the interview:
Jack: Thomas tell us how long have you had Brand Journalists up and running.
We started in 2008 and really kind of hit the ground running real hard and heavy in late 2009, early 2010 doing franchise lead generation. Our background is we’re mostly former newspaper journalists. We believe that storytelling and the craft of journalism made sense for the direction buying behavior was going in terms of trying to communicate with a company. Using a conversational, journalism style communication — could be videos, could be blogs– made a lot of sense in terms of what people were trying to do. I think we really see big disconnects in the way companies market and try to influence their customers or connect with them. Story-based marketing really cuts through a lot of the noise. It’s been a great ride.
Jack:I remember a lot of the origins were getting stories in newspapers, and now it’s grown so far beyond that. I think you were the first guy I ever heard use the term brand journalism. You were probably also the first guy I ever heard use the term content marketing.
I think we were really pioneering. When we started telling people, “Look, you need to write in a conversational style. You need to make really long web pages and you need to understand how to connect with people with stories because we believe the story is the essence of communication.” As humans we use stories to make sense of the world around us, to make decisions, to understand and relate to each other and to relate to goods and products and services. Storytelling is not something that’s really easy to learn, but the power of a well told story is you don’t realize you’re being sold to. It’s interesting and you like it and it’s fun to read and it gives you helpful information.
It’s been a wild ride. We’ve really grown a lot since the early days. We work pretty much in the franchise space. That’s become the mainstream form of lead generation, brand journalism style article format, recruiting websites and content marketing campaigns and email campaigns. That’s kind of the norm now but that was pulling teeth in the beginning. It’s very counterintuitive to what people thought they needed.
Jack: Five years ago we were deep in the land of portals and all of those other things that I think we’d like to forget about, right?
That’s right. Bombarding people with bullet points and cheesy ad slogans. It’s an election year so this is a really topical thing. There was a really good article on NPR recently and the reporter was talking to a strategist of some kind. He said, “The ad spends for TV advertising are way down, it’s historical lows.” Donald Trump, like him or love him or hate him, whatever your issue is, he hasn’t spent any money on TV commercials. The reason is that people now view commercials as inauthentic and fake and not really believable and it’s a total waste of money to do that because that form of marketing is dead.
It doesn’t exist, it doesn’t produce near the results that it used to. We see that parallel in all types of marketing. We work in franchise recruitment which is helping franchise companies generate leads and recruit franchisees. That’s a big ticket item, it takes a lot of research. It really makes a lot of sense to use storytelling and brand journalism, not just in the written word but on websites and in social media and in PR, and particularly in video. You brought up that point, that’s the cutting edge, we’re in the video cutting edge of brand journalism where we were with the text 5 or 6 years ago. That’s real transformative. That’s fascinating to learn about.
Deb: Your videos have changed, too. You’ve done videos for a while but your video style now is more of a documentary versus a commercial.
That’s exactly right Deb. One of the things in franchising that’s really fascinating is there’s a demographic shift in who buys and researches franchises. It historically has been baby boomers which are a very large demographic group. If you pull baby boomers in FRANdata, a big franchise consulting firm’s release data, they would say that 8% or 9% of baby boomers associate with an entrepreneurial career path, meaning they’re open to owning a business or doing something entrepreneurial. It’s a single digit number which makes a lot of sense. Baby boomers as a group were conditioned to go to college, get a job at a big corporation and retire with their pension.That’s the safe career path.
In the meantime the millennials, which are people 32 and under, they’re a much larger demographic group. It’s frightening how large that group is. They have a very different view coming to the recession of career path, working for a big company is a risky, not safe thing to do at all. As a result, 60% of millennials associate with entrepreneurial careers or are open to doing something entrepreneurial. When you understand that that’s the future in our space, franchise recruitment. As a demographic group they also have very different buying behavior and online patterns in what they do and very different expectations of content in what they do.
From a video standpoint you think of it as the YouTube generation. I’m a guitar player and I want to learn a song, I go to YouTube. I like to cook and I want to make a sauce or learn how to grow something, I go to YouTube. We do a lot of operational videos for company but what we began understanding is there’s a parallel with YouTube’s influence and then this real desire for authenticity and the real deal. The millennials don’t want the over-fluffed watered down, kind of glitzy big chains. If they go to a restaurant they want to go to the cool hole in the wall restaurant in their neighborhood because it’s real and it’s authentic. We see that in franchising. here are lots of small franchise chains that have a very authentic feel to them.
They’re franchise chains, but they’re not like the Taco Bell, KFC, Pizza Hut variety, they’re the other end of the spectrum. They’re very unique, you wouldn’t know they were a franchise chain. When it comes to video you have a surge in interest in documentary style filmmaking, which is a very different form of video. It’s very cinematic, lots of motion, some handheld. High production value in terms of it’s technically difficult to produce because you have to equipment the average person doesn’t have, but it’s also very real and authentic. It’s not over-polished, it’s a real story. It’s the kind of thing you’d see on public television or if you went to South by Southwest, the short movies that documentary filmmakers make. What we’re finding now is when you can create a 4 or 5 minute doc of a brand story or a 4 or 5 minute doc in video format that’s posted on YouTube and embedded on the website or used in emails or in sales lead nurturing campaigns, that gives you insight into somebody’s real personal story. You can spend the day with somebody and see them explain their business and operate their business in a documentary style. It iss an amazing emotional connection for people, we call it a gateway piece of content.
People will decide to investigate based on that because that type of video, because it’s real and authentic, creates curiosity and earns a read of all the other information that follows behind. We see video as … At the recent franchise conference in Atlanta we went to for leadership and development we did a survey of franchise recruiting websites and less that 40% had video. People go to an annual conference, where they have all their franchisees together and they set up a video photographer in the hall and they drag the franchisees out of the session and they stand them against the wall in a logo shirt with a logo behind them.
It’s like you held a gun to their head and say, “Say something nice about training and support.” “Say something nice about your franchise … ” whatever. “Why you like it.” It’s not authentic, it’s the same thing we see in political ads. It’s not believable because it’s not the real deal. That’s been a real challenge so we recruit filmmakers on our staff, we have people, that’s what they do for a living, make documentary movies. Then we apply that franchise marketing but it would work in any industry. It’s fascinating. It’s absolutely fascinating how people respond to that.
Jack: It really seems like there’s this perfect storm that you’re riding the wave ahead of with millennials and videos and how the video really connects with people more than a typical printed piece. But also, these cool franchise concepts that aren’t the typical Taco Bell, McDonald’s and Wendy’s, but something cool that would be appropriate for these young entrepreneurs to get interested in. This is all sort of lining up all at the right time it seems. Tell us a bit about this documentary style that you’re talking about. If someone would like some tips on how to juice up their videos or make them a little bit more accessible to people in this manner, what should they do? Is there a certain length that they should shoot for? Is there a certain level of information packed into the video? What do you recommend?
That’s a great question. It’s similar to building a website. We build recruiting websites that are very deep and rich in content. The pages are very long and people may say that’s so much content who would read that? The answer is the person that can relate to the content. If you are interested in a topic and the content of the video or website or writing relates and helps you answer the question, you have an appetite for a much longer video than you think. I think it’s easier to talk about it in terms of what not to do. What doesn’t work is super high production value, flashy with cheesy music and animations. This doesn’t look real, it’s over lit that’s what people have invested in and that doesn’t work at all. It doesn’t look real.
It’s an abstract of what the real thing is. On the other hand of the spectrum, a shaky handheld video with an iPhone looks cheap, it’s distracting. I think for documentary style, people use two camera setups and things called sliders and gyroscopes for handheld stuff that’s nice and smooth and even so that it’s not distracting. It’s lit well but it has a natural feel to it, like the real world. So if you went and spent a day with that franchisee in this case he would exactly like you saw there. It’s not glossed over. The trick is the story has to take center place. The story always stands out. If the content is interesting, we have a video. Look at our brandjournalists.com, if you look at our portfolio page you’ll see a bunch of examples. There’s a real good story, I Love Juice bars, a really amazing Nashville based juice franchise we do a lot of work with. The founder is this really charismatic guy who was overweight and watched one of those documentary movies about all the junk that you eat and started doing juice cleanses, which is something that franchise does a lot of. He sells a lot of franchises but people watch the video and they associate with him, they understand, they get his personal story. He says, “It was really hard. It’s not for everybody. After day 3 all the cookies and candy started oozing out my pores.”
He didn’t make it sound really positive, it was a Herculean effort on his part. Then he talks about what happened afterwards, it changes his life. It’s this really worthy brand, because that’s the other thing people want. They don’t want to just make money, at least in recruiting for franchisees, they want something worthy to do for a living. They want to enjoy what they do. They want it to be fun. They want to feel good about it. They want to enjoy going to work. Video is a great way to create that emotional connection around the worthiness of something to do, using a story to wrap that up.
Jack: Who is usually in the video? Is it typically the owner of the brand or people from the brand or do you have current franchisees participate? Who do you really like to have as the talent of the video?
It varies. In our projects when we build recruiting websites we’ll create what we call a brand story, a 4 or 5 minute piece that really makes the brand come alive and gives somebody an emotional connection to brand. It will have the CEO and maybe some franchisees and customers and cinematic images and b-roll of different things going on at the brand. That’s really helpful just to give somebody some overall context. That’s usually a home page, your first introduction to what the brand is, trying to create some momentum and activity and a little sense of the culture and what the brand is all about in 4 or 5 minutes.
That’s really helpful, that often will get people oriented to the brand and create curiosity about the value proposition. The next piece that’s really valuable is doing the documentary style videos of, in this case, franchise owners where you spend a whole day and you get to see what their day looks like. You get to see them do their business. We did a really interesting one for Aamco, the transmission franchise. We followed around a 35-year veteran in New Jersey…he’s like right out of a gangster movie. He’s an amazing guy. He starts talking about, he’s like, “You know I worked on cabs, I drove a tow truck and I’ve been a mechanic. I always wanted to be in a position of authority, I wanted to be the boss.” He’s like this amazing, over the top guy, runs a fabulous business, but he’s the boss. If you’re a mechanic, he’s who you want to be when you grow up. A very, very successful business owner he’s totally got control over his domain. They’ve done really well with that. It resonates with their core audience of people who buy an Aamco franchise. It’s been really helpful to understand that you can spend 35 years in business and end up with a really awesome beach house on the Jersey shore. You can raise a whole family, that’s what people want. The video is gritty and real, it’s not polished. It would be worth looking at if you want. We do that kind of thing on a regular basis.
Videos answer common questions. If you want a piece of content, whether it’s a video or text to relate to people, start with what are the questions they have and what are their objections and where are they hitting the wall and create a piece of content that’s in the story based form where somebody explains. We were working with Expedia Cruise Ship Center and one of the big issues with that brand is where do they get their consultants, because you open a retail travel agency and then you hire a bunch of freelance travel agents who work under you, kind of like a real estate office but they sell cruises. Video is a really good way to show people what the team looks like and how it’s managed. You can see who the people are and then in your head you can wrap your head around it as an entrepreneur. That type of video done in a documentary style, with good clean sound and good, solid filmmaking skills, it’s powerful stuff. It’s transformative for a brand. It’s amazing what it will do. People will tell us, “I bought this franchise because I saw that video and I really liked what it said.” They get stuck into reading about the brand, next thing you know they discover they want to buy the franchise. It’s the gateway piece of content.
Jack: The gateway part of it really makes sense because I could see a video attracting the attention and bringing someone in and making some sort of emotional connection with them and then they can do the research and read up on whatever other information that you want to share with them. If you’re sharing that information first they’re not going to make that same kind of connection that they would with a cool video, right?
That’s what a value proposition is. That’s if you’re going to buy a business the value proposition has to relate to you. That’s a real important thing the video does, is it gives you the ability to create that curiosity about what the value proposition is.
Deb: I love the approach. Going back to the I Love Juice guy, it’s a story. His story wasn’t pretty at first, he was a sad person and he needed to lose weight and then got interested in the juices, that’s what I think made it really real. It was very realistic and you can relate to that.
Yeah, if you’ve seen that video and if you went to an I Love Juice franchise today, you would relate to that brand on a very deep emotional level, much deeper than you would if I said, “Grab a slice of success, buy this franchise.” It doesn’t work. People just tune it out.
Jack: If people are interested in making videos like this or at least experimenting with them, should they be hosted on a specific page for that company or are you also putting these same videos out in other social places like YouTube and Facebook?
That’s a great question. We tend to use YouTube as our hosting for videos because we embed quite a bit of video on web pages. YouTube by itself doesn’t help much for business goals, it’s hard to generate leads off of a YouTube page, it’s difficult to optimize…but it’s designed to show videos and not to accomplish your other business goals. You need to put them on your website. I’m a big fan of Facebook for videos, like the Facebook advertising platform for creating and promoting videos to a much broader audience based on likes and demographics is fascinating to me. Take that Juice Bar video on Facebook, it does amazing things. People who like juice will really get into that video. It’s like, “Wow, I love juice and I can make a lot of money. It would be worthy, I could help all these people live healthier a lifestyle.” That’s for the people who buy that franchise, that’s what they’re really looking for. I think that Facebook’s really good, YouTube’s really good. Embedding it on your website is really good. You can’t embed a video in an email but you can take a screenshot of the YouTube video and put that in the email. People click on it and it goes to your website and they can watch the video there. That little trick does amazing things for email conversion rates which we really recommend.
Jack: You’re hitting people everywhere. You’re hitting the people who are already in a database with email, you’re hitting anyone who might be searching for information, you’re hitting them on the website, maybe on YouTube, and then for all other human beings on Earth you’re basically hitting them on Facebook, right?
Yeah, all other humans. You can use it in other places. I think if you think about it as a gateway, it’s a bit like breadcrumbs in the forest for Hansel and Gretel, you need to create interest and then you need to give somebody a clear path to follow, to go deeper in their awareness of the brand, like staging a house or like what a builder does to a model home, it’s designed to keep you there for a long amount of time and create visualizations about what it’s like to live in that house. That’s why people like to buy the model houses. That’s the marketing strategies not just the video itself. It’s equally important that you have good video and you use it correctly. When you connect it to a deeper brand journalism style approach where you have layered content where somebody can spend an hour reading about whatever they’re interested in.
We call it licking paint, people get so excited they want to lick the paint off the wall, because you’re giving people what they want. It’s like if you go to a restaurant and you sit down with your wife or your spouse and you look at the menu and you can’t decide what you want to order, when you ask the waiter what’s good, you want the waiter to tell you a story about what’s amazing. You don’t want them to say, “Everything’s good.” You want them to say, “Wow our margherita pizza is over the top. The guy comes in at 3 in the morning and makes dough by hand and we grow heirloom tomatoes in the back. Man it’s a really good margherita pizza.” It’s positive reinforcement because I already want to make a decision and a story helps me make the right decision, or it makes me feel good about it at least, which is the same thing.
Jack: Very good. This is Social Geek Radio and tonight’s guest is Thomas Scott, the CEO and founder of Brand Journalists. Thomas in a few minutes we have remaining, if people have additional questions about brand journalism or content marketing or even more specifically some tips on these videos, what’s a good way for people to reach out and ask you a few more questions?
Our website is brandjournalists.com; our contact information is there. My email is firstname.lastname@example.org. Definitely look at our portfolio page. We’re happy to answer questions. I think brand journalism has become mainstream for website creation and content marketing. That was big in 2012, but the video part of it is really fascinating to see where that’s going because I think if you look two years into the future we’re going to be doing everything on smartphones. There’s not going to be laptops, it’s all going to be smartphones. That’s the tool you’re going to have to use to influence people.
Jack: Very good.
Deb: We will see you in San Antonio in a few short weeks at the IFA 2016 convention. Looking forward to it.
We’ll be there. Definitely look us up if you’re going.
Why some fail and what can be done to help more new franchise systems succeed
Talk to any number of franchise brands at the IFA Convention with fewer than 100 franchisees or locations, and a troubling theme will emerge: An alarming number of them have not been able to grow as they expected. Some have stopped growing altogether; others have declined from peak numbers of franchisees or locations. Even more troubling are the large number that have ceased to exist and are no longer represented in the aisles at the IFA convention.
Compared to other industries, we find franchisors to be far more transparent with information, more open to giving advice and more likely to take a personal interest in the success of others.
Why, then, when so many passionate people have committed their lives to improving the condition of both franchising in general and franchisors in particular, do so many new and emerging franchisors struggle or fail?
Are these failures isolated incidents or examples of a franchisor failure epidemic? In 1998, business school professor Scott Shane studied the problem and published his results in an article titled MIT Sloan Management Review. He researched 157 companies in 27 industries that became franchisors between the years of 1981 and 1983. He looked at their progress after 12 years as a franchisor.
His conclusion was that 75% of these franchisors ceased to exist. Only 25% survived.
Are Shane’s findings still valid today?
Franchising is full of success stories where committed franchisors created scalable and profitable businesses, which will be around for the long haul, taking many franchisees along for the ride and adding more value to the brand than either party could have created separately.
But why is franchising so successful for some, while so many others struggle?
8 Mistakes That Can Lead to Failure
Most would-be franchisors have the wrong questions in mind when they begin thinking about expanding via franchising. They ask, “How do I launch a franchise system and what does it cost?” The question they should be asking themselves is, “What does it take to sustain the organization on royalties and continuing fees alone?”
There’s an entire industry of franchise attorneys and consultants who specialize in packaging and launching franchise systems. They cite amounts in the range of $100,000-$150,000 to to launch a franchise system including such things as writing an FDD, designing templated training programs, writing operations manuals, upgrading consumer websites and designing franchise sales processes, tools and systems. Inexperienced franchisors often take this at face value, assuming from that point forward the business will self-fund through the revenue generated by franchisee fees and eventually royalties. Many franchisors fail because they grossly underestimate how much capital it takes to get to royalty self-sufficiency.
Franchisors should plan on investing a best-case scenario of $500,000 to upwards of $2 million to take them from launch through the initial ramp-up to 50 franchisees or units; at that point, most franchisors will have crossed the threshold where royalties and recurring revenue are covering all of their operating costs. Those quoted amounts do not include the money owners or founders pull out of the business. If you plan on living off of your system, add that amount the the total needed.
We believe many new franchisors get into a circular situation where they start out with just enough capital to purchase the FDD and operations manual and a small ad budget to start recruiting franchisees, but not enough to sustain the franchisor through their growth curve. As they recruit franchisees, they either underestimate what’s needed or don’t have a clear roadmap for investing back into all those things an emerging franchise system needs: operations staff, developing training systems and coaching franchisees through the learning curve so that they, too, can become profitable.
2. Poor operations, training and support
Undercapitalization or franchisor inexperience leaves the franchisor with ill-conceived or under-developed training and operating systems, poor or ill-prepared operations and support, leading to breakdowns and low profit margins for franchisees, which in turn creates operational headaches for the franchisor and poor franchisee validation. If the franchisees are not making money and are unhappy, it becomes impossible to attract additional talented franchisees. This pushes the franchisor’s dream of “royalty self-sufficiency” further out into the future. Inevitably, the franchisor will find themselves at point No. 3.
3. Selling franchises to survive
When a franchisor is selling to survive, they make poor recruiting choices and accept franchisees who may be operationally unsound or a poor cultural fit for the business. Some franchisors start selling profitable company stores or territories to fund an unprofitable franchisor. All these add strain on cash flow and operations and diminish the franchisor’s likelihood of success. While this vicious cycle is predictable, they either fail to see it coming or to break from its clutches. After a couple of years, if franchisees aren’t making money, they will start listing their businesses for sale. This creates a situation where the franchisor loses good candidates to resales and collected slim transfer fees rather than larger franchise fees. Ab abundance of resales will spook strong candidates into investing in another, more stable franchise.
4. Lacking the skills and mindset of a successful franchisor
Too often, new franchisors relate to franchising as a distribution or growth strategy rather than a business unto itself. They may be excellent at running the operations of their core business but never acquire the skills necessary to become a successful franchisor. For instance, retail chains often run best when the key decisions are made by a small, central authority and then pushed out to the organization to be implemented. Franchising is more decentralized and requires more buy-in on the unit level than other models. The more centralized and less collaborative a franchisor becomes, the more franchisee-franchisor relationships suffer and become unworkable. To succeed as a franchisor, the chain must successfully transition its culture from that of a strong central authority where all decisions are made at the top to a more decentralized and empowerment culture where more decisions are made at street-level by the franchisee.
5. A ‘get rich quick’ mindset
Some franchisors get into franchising for the wrong reasons, chasing upfront franchise fees or area development fees for quick cash, thinking, “I can sell a widget for $20 or a franchise for $40,000! Or perhaps an area for $100,000! I choose franchising!”
They aren’t at all concerned with franchisee profitability. They have little to no operational expertise. They don’t know or care about how to make franchisees profitable. They aren’t concerned with the long-term viability of their brand. They want to sell as many franchises as possible and then dump the company before the operational problems hit the fan. We often see this in the weight-loss or with fitness concepts.
6. Running a sprint rather than a marathon
Many beginning franchisors enter franchising thinking they are going to be the next big thing in a few years and aren’t capitalized for the long haul. Franchising is a 7- to 10-year play. If would-be franchisors cannot wait the 7-10 years it takes to monetize their intellectual property, attain royalty-sufficiency and build significant momentum, they would be better served by opening more company-owned units or territories, which will offer them a better 3-year return on investment. Profitable franchisors are often are valued at 6-8X EBITDA instead of the typical 3X EBITDA of a typical small business, which is why smart, well-capitalized, patient franchisors enter franchising in the first place.
7. Overestimating value or demand
At Franchise Performance Group, we have a saying: “People don’t invest in franchises, they invest in results.” In other words, franchise candidates really don’t want a franchise, they want their lives, careers or investments to look a particular way. The franchise opportunity should be able to bridge the gap between where the candidate is and where they wish to be in the future. If you buy into this logic and consider the thousands of franchise offerings currently available, you will see that almost any outcome a franchise candidate could want can already be satisfied in the universe of current offerings. Bluntly speaking, the marketplace has more than enough franchisors and probably doesn’t need yours to improve or expand its breadth of potential outcomes.
However, the franchise-buying marketplace will always reward a business that is unique, profitable, enjoyable, difficult for competitors to copy and offers franchise candidates an acceptable, predictable and sustainable return for the long haul.
8. Being ill-prepared
Many franchisors come out before they are “franchise-ready.” Perhaps they haven’t proven they can replicate their success in other markets, and their unit-level economics are unpredictable or inadequate. They may have underdeveloped systems that are sufficient enough to get managers up to snuff, but not new franchisees. Many franchisors lack uniqueness and launch knockoffs in an already crowded space, hoping to ride the coattails of the category leaders. We often see this in categories such as residential services, food service and commercial cleaning.
An emerging franchisor can’t make too many mistakes recruiting the wrong candidates, choosing bad locations or ramping up franchisees slower than expected before franchisee validation suffers and the brand implodes. They have to come out of the blocks smoking, replicating the original model with results as good or better than the company units or territories that started it all. Franchise buyers typically don’t reward what they think is only a good idea; they rally behind great execution and predictable, positive outcomes.
Doing it right from Day One
During a recent IFA convention, we approached several franchisors in different industries that survived the start-up phase and had growing franchise systems with happy and profitable franchisees. They had all crossed the threshold where they were royalty-sufficient, meaning their existing royalty stream sustained the business. Their business could sustain itself if they failed to recruit another franchisee.
We asked them, “Knowing what you know now, if you wanted to launch your concept right and not be undercapitalized, how much should you have started with?” Their answers were very consistently between $1 million and $2 million. Not a single franchisor we know of invested less than $1mil. Not one.
We’ve worked with two franchise brands recently, both started by well-capitalized companies with deep pockets. Both owners had experience in franchising and set out from the beginning to build successful national brands. One, an IT franchise, has just passed the 50-territory mark and has made an almost $8 million investment to get to royalty self-sufficiency. The other, a groundbreaking music school franchise, has invested more than $15 million to scale their business to six schools and build out the infrastructure, systems and support structures needed to scale the business quickly. Franchisees’ revenues are up 40% over the last two years. The model is hitting their tipping point. They look and act bigger than they are. In other words, they’re built for long-term growth, and the company will grow into their excess capacity rather than continually stretching the organization or breaking it down.
When we took on Menchie’s as a client with 25 units, one of the first things CEO Amit Kleinberger did was assemble a roundtable summit with some of the top consulting minds in franchising: a legal expert, a top PR firm, a top marketing firm and our firm, which specializes in lead generation and franchise sales. Kleinberger made sure from the jump that Menchie’s was set up to win as a franchisor. Four short years later, Menchie’s is opening its 400th location, with almost 300 more in development. Menchie’s has brought on more than 100 franchisees each year for the last two years and is on course to become an iconic national brand.
How should you spend your money?
All sustainable franchise brands have already achieved royalty self-sufficiency. It’s the key milestone in a franchisor’s history.
The initial capital — from a best-case scenario of $500,000 to a more likely range of $1 million to $2 million — is pure investment, meaning none of it will be used to line the owner’s pockets. Expect 75% to be invested in infrastructure, including a larger and more experienced home office staff, better systems, better training and plugging any holes in the model. Franchisors, when operating correctly, will quickly employ a team of specialists, including:
VP of Operations: This person should be an expert in replicating the business model, accelerating new franchisees through the learning curve and maintaining brand integrity. They will build and manage a team of operational support personnel who will act as franchisees’ business consultant to identify areas of breakdown and bring in specialists where needed.
VP of Marketing: Someone in this role will provide the expertise in new customer acquisition, increasing customer frequency, increasing average customer transaction revenue, increasing customer retention and loyalty, and creating a brand identity.
VP/Director of Franchise Development: This expert will identify your value proposition as a franchise opportunity, craft your franchise sales process, tools, CRM, systems, maintain FTC compliance and recruit, train, and develop successful franchisees.
Director of Training: This person will work with the VP of Operations to craft learning systems for new franchisees, which will accelerate them through the learning curve and past break-even as quickly as possible.
CFO: The CFO will create, track and manage the franchisor’s financial plan, secure financing for franchisees’ initial capitalization and expansion, reduce the franchisor’s tax burden and manage budgets.
Founder/CEO: The leader sets the vision and long-term objectives, sets the culture and corporate values and acts as a control tower, making sure all internal and franchisee relationships remain workable, and must also marshal the resources necessary to allow these franchisor specialists to execute their “A game.”
Many new systems underestimate how important it is to hire skilled staff early in the process. Many franchisors jerry-rig such things as training by promoting a company manager or promote family who have no background in adult education principles and lacks understanding of how professionals from outside their industry learn new business models. The predictable outcome is a system where franchisees struggle rather than power through the learning curve and ramp up slowly.
Additionally, many franchisors hire outsourced franchise sales firms who have no commitment to the long-term health of the organization. These firms are paid a large percentage of the franchise fee revenue, and often a percentage of ongoing royalties as well, which further delays the franchisors’ ability to achieve royalty-self-sufficiency. Because banks and other potential investors evaluate the worth of the franchisor by the predictability of their recurring revenue streams, the franchisor finds out too late that they wiped out a significant portion of their equity value and credit worthiness the moment the ink was dry on their contract.
We recently spoke to the owners of a quick-service restaurant chain who signed a 10-year, no-cut deal with no performance guarantees with a franchise brokerage firm. The brokerage firm receives 30% of revenue and a percentage of royalties on franchisees recruited. The brokerage firm has not produced a fraction of what was promised. The chain needs an equity injection to keep going. Investors are balking because the franchise brokerage firm, rather than the franchisor, receives most of the value of the turnaround. This is a chain that might have grown to 200 units, but will most likely bleed out before they open 30 units.
There are excellent outsourced franchise partners out there, but there are also sharks. Check references. And never pay royalties.
Investing your first million
Your first $150,000 to $250,000 should be used to surround yourself with smart people to make sure your systems are tight and franchise-ready. Then allocate $250,000 for advertising for franchisees and a highly experienced franchisee recruiter. This $250,000 should come back in the form of franchise fee revenues, and the department should run at break-even within a year. Expect no deals for 4-6 months, and anticipate 6-12 franchisees over the next six months. If your initial franchisees ramp up strong and validate well, you can expect some rapid acceleration and exponential growth from there.
Allocate an additional $500,000 to bring in key personnel such as VP of Operations, training, field support, Director of Marketing and finance. It would be great to have an additional $500,000 to $1 million on the sidelines to draw from for brand refinements, round out the leadership team, and cover emergencies or breakdowns on the way to royalty self-sufficiency.
One of the greatest things the IFA has ever done was to compile the ICFE Study Guide, which is an amazingly dense mind-share of some of the most brilliant content experts in franchising. Most of what it takes to run a successful franchisor has been identified and flushed out in this study guide. It’s a great source of information to show new or would-be franchisors what is in their blind spots… what they don’t know that they don’t know.
We also recommend bringing in an experienced and successful franchise executive on retainer early on to help you evaluate your model and personnel and determine your readiness. Notice we said experienced and successful. Franchising is populated with many franchise executives who are merely “clingers” with weak track records.
We also recommend you attend the IFA conferences and events of local chapters to get a better grasp on what you need to be concerned about as a franchisor.
Launching your concept
A franchisor’s first inclination might be to bootstrap it, putting together a marginal program, hoping it is good enough to start and thinking, “When I have more money, I will do it right.”
Ask yourself this: If you were a smart franchise candidate, would you bet your farm on a company that was knowingly undercapitalized and didn’t have the resources to go with their A-game? Of course you wouldn’t. So, right out of the gate, an undercapitalized franchisor is set up to recruit B-level franchise candidates at best.
Is this how iconic brands are built? Is it any wonder bootstrapping franchisors and franchisees get chewed up in the marketplace?
Isn’t there a better way?
Assuming you don’t have normal credit lines or access to commercial loans to fund growth, private equity has entered franchising in a big way. If you are an emerging growth franchisor who has not attained royalty self-sufficiency, chances are your franchisor has little book value because you haven’t profitably monetized your intellectual property. The franchisor may not be credit-worthy, and may be worth less than the franchisors has already invested, since the franchisor’s book value is determined by its assets (and many franchisors don’t have many hard assets), EBITDA (emerging growth franchisors typically won’t have strong EBITDA), and long term predictability of their royalty streams (franchisee fee revenue is a “one time hit” and not sustainable. Private equity firms will often discount the value of the franchise fee revenue, the same way they would discount a one-time tax rebate. They will however assign some value to the predictable royalty revenue of new franchisees who are not open yet.
You are faced with a decision: Do I own 100% of something with predictably little value and long-term sustainability that is highly likely to fail OR do I own a smaller piece of something with great future potential that is better positioned to win? If you can live with the smaller piece of something with potentially greater value, you still stand to make out in the long run, and that might be the best decision for your company. Taking on a partner or private equity may be your best play.
Second, you have to ask yourself, “What type of experience am I looking for in a partner?” Partnerships and equity firms will offer you varied levels of involvement and experience depending on what they are looking for also. Many franchisors reading this may experience a knee-jerk reaction thinking, “I don’t want ‘the blue suits’ running my business and calling the shots!” But the right partner may also offer the franchisor a particular brand of genius they couldn’t afford to pay for right now… which may prove to be the missing ingredient to their overall winning formula. The right equity firm or financial partner may bring the A-game.
For instance, Franchise Performance Group operates a franchisor-growth equity firm called FPG Capital. FPG Capital makes investments in emerging growth franchisors and brings with it highly skilled experts and proven intellectual property in the areas of lead generation, franchise sales, franchisor leadership, strategic planning, technology, operations, organizational development and franchisee-franchisor relations. While we are highly hands-on and are not for everyone, an equity firm like ours simplifies the franchisor’s business by our taking over some of the critical day-to-day functions like franchise sales and adding the needed expertise to avoid pitfalls and ensure success.
We prefer to work in partnership with the existing leadership team, increase their capacity, and “turbo charge” their franchise program. Other equity firms look for operational control and bring in their own people. Others are completely hands off and track their investments through key performance criteria and monthly board meetings.
One of the pitches franchisors make to franchise candidates is “don’t go it alone. Buy into our experience. You will ramp up quicker and have a higher probability of success.” And on balance, they are right.
But as a franchisor, you might find the shoe is now on the other foot. Too many franchisors go it alone, undercapitalized, under-resourced, inexperienced as a franchisor, and making the same rookie mistakes as legions of franchisors before them, never fully monetizing their franchisor business model.
There are numerous equity firms and potential partners operating today in franchising. Start with knowing what your organization needs, structure an offer, and then search out one that meets your needs.
Franchising is unforgiving. Franchise candidates do not want to finance your learning curve as a franchisor. They are paying for expertise and experience, not just in how to sell products and services, but franchising itself. They do not want to bankroll your expansion capital with their franchise fees. They don’t wait for the people and tools you should have gone to the market with in the first place. They don’t want your B-game. Smart money won’t put their dollars there — inexperienced franchise candidates might. You will never build a meaningful, sustainable and profitable franchise brand leading a confederacy of naïve franchisees
The big payout for doing it right
If you were to contact a business broker and value your franchisor, if your EBITDA is under $500,000 you would hear your business valued at about 3-4 times EBITDA. However, if your EBITDA started cracking $1 million a year, that valuation would bump up to 6-8 times EBITDA.
Most franchisors don’t have 100 franchisees or units and never crack $500,000 in EBITDA. Often the difference between a 6-8 times EBITDA valuation and 3-4 times EBITDA valuation is the next 100 franchisees or units.
<$500,000 3-4X 0-$2 million >100
$6 million-$12 million+
Notice the increase in exponential increase in equity value when a franchisor climbs from under $500K in EBITDA to over $1mm. A small $500K increase in EBITDA will create $4-6 million dollars in equity because the multiplier is higher. As franchisors approach 500 units and franchisees (about the minimum number it takes to build national brand name recognition in the US), valuations can get into the 10X or higher.
The biggest barrier to blowing past the 100-franchisee or unit milestone is how successful the franchisor was in onboarding its first 25-50 units or franchisees.
To win in franchising, a franchisor needs three things:
1. A proven, replicated, predictable and highly polished business model.
2. Skills in how to recruit, train, develop and lead a team of high performance franchisees
3. A war chest of at least $1 million to cover expenses relating to smart growth Some franchisors will need to invest much more.
If your franchisor doesn’t have all three, more than likely you are already making one or more of the 8 Big Mistakes in this article. Luckily, there is time to right the ship while the ship is still seaworthy.
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