Buying an Emerging Franchise, Advantage or Disadvantage?

New franchises can offer cutting-edge concepts, superior territory selection, favorable terms.

By Don DaszkowskiDon Daszkowski is the Founding Member of the International Franchise Professionals Group (also known as IFPG.) The IFPG is a membership based organization that has over 800 members.

SPONSOREDUpdated 5:17PM • 11/24/15

Ever since the Great Recession, a spirit of entrepreneurism has swept America. The innovative, startup culture is alive and well in the franchising industry, and can be seen in the hundreds of emerging franchises offering ground-level opportunities to new business owners.

An emerging franchise is generally defined as a franchise company with less than 25 franchisees. There are hundreds of them in the United States and more are added every year.

Yes, there are risks associated with emerging franchises. Not all will grow, but the majority will. And in many cases they can offer significant advantages and opportunities for new business owners.

Among franchising’s newest players you’ll find tomorrow’s big hits — the next Supercuts or Budget Blinds. You’ll find innovative and affordable home-based franchises, “green” franchises offering services that minimize harm to the environment and new twists on food that appeal to a public with a seemingly insatiable appetite for tasty, convenient food — to name a few.

We (my group, the International Franchise Professionals Group) recently added an Emerging Franchise Membership and it is very exciting to watch these new franchise concepts capture the imaginations of industry colleagues and new franchisees.

For example, Mr. Bamboo, an emerging franchise based in Illinois, is entering franchising with a revolutionary approach to flooring. Their bamboo products seem tailor made to disrupt the flooring industry. Bamboo is stronger and denser than most hardwoods and is actually a grass that takes five to six years to grow as opposed to an oak tree with takes about 30 years to be harvested.

Mr. Bamboo is just one of hundreds of examples of how an emerging franchise can offer innovation in an existing industry.

‘Fragmented’ industries = opportunity

Many emerging franchises seize opportunity in what economists call a “fragmented” industry. A fragmented industry is one that has no major organized players. These industries tend to be populated by businesses that are mom-and pop shops or individually-owned operations. Their business practices can vary widely because individual owners use individual methods. In other words, industry standards can be piecemeal or nonexistent.

New franchisors in fragmented industries have the opportunity to step up and lead their industry sector. They can earn reputations as the industry innovators, thought leaders and standard bearers.

And fragmentation doesn’t have to translate as small or insignificant. In fact, the opposite is true. You’ll find fragmentation in many robust sectors — from home improvement to pet services to senior care.

The real opportunity is for the emerging franchise to grow authority and market share until it becomes a true industry leader.

Here are six advantages to emerging franchises.

• There will be a much better selection of territories and in many cases you will receive a larger territory.

• The initial franchise fee and on-going royalties can be lower and more reasonable than a bigger player.

• A new franchise concept can attract interest and generate strong buzz. This kind of excitement can benefit franchisees.

• The Emerging Franchisor will want to avoid failure at all costs and typically is willing to provide assistance above and beyond what is required.

• Creative financing may be available. In some cases the franchisor may be willing to finance a portion of the initial franchise fee.

• Some emerging franchises are willing to negotiate more favorable terms in the franchise agreement. In general, franchisors in the early stages of their growth want to build a foundation of new franchisees.

The real opportunity for the emerging franchise is to grow authority and market share until it becomes a true industry leader. The most successful franchisees I have met are usually the first couple of franchisees in the franchise system. Just remember that franchising is a partnership and hard work is always expected from all parties involved.

For more info on the IFPG Emerging Franchise Membership call Don Daszkowski at (888) 977-IFPG or click here.

Buying an Emerging Franchise, Advantage or Disadvantage?

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