Here’s a fun experiment: tell a close friend or confidant that you’re planning on starting a business then wait for their reaction. Chances are good that it falls within the range of disapproving to incredulous.
The current economic climate certainly doesn’t seem like an entrepreneur’s dream—consumer spending is down and small business loans remain difficult to obtain. And although recent trends appear to show the downward spiral leveling off, convincing entrepreneurs to change perspective on the half empty glass is still a challenge for franchisors hoping to grow their brand.
Much of the challenge boils down to money, or more accurately, a lack of it. Financing is universally difficult to obtain. People who would have sailed through the loan process five years ago are struggling to get banks to fork over even small amounts of capital. The resulting lack of cash goes beyond a simple matter of numbers and affects entrepreneurs’ entire approach to buying a business.
Judy Walker, Vice President of Marketing at 2,200-unit
Anago Cleaning Systems, says potential franchisees are looking at businesses with a much more critical eye.
“We’ve had to delve into a lot more detail in our FDD,” says Walker. “People are asking more detailed questions and are putting more importance on validation.”
Because of this wariness to invest, franchisors must work even harder to demonstrate the value of their concepts. This is done not only by showing the strength of the business model and franchise system, but also through financial incentive programs.
We Do Lines, a Connecticut-based parking lot line striping business, is adjusting their FDD to ease the monetary strain on new franchisees.
“We will be offering a franchisee fee deferment program in addition to six months financing for the tools and supplies franchisees need to get off the ground running,” says Chris Couri, CEO of We Do Lines. The company also offers a 25 percent discount on the franchise fee for veterans, an idea supported by the IFA and gaining popularity across the industry.
Other brands are taking even more drastic measures. Anago recently slashed their franchise fee to make themselves more competitive in the cleaning industry.
“Our competitors are charging upwards of $100,000 to $200,000 for a master franchise,” says Walker. “Small business is what has made our country great, and in light of that our Founder and Chairman David Povlitz decided reducing our franchise fee to $39,000 would be the best way to help entrepreneurs own their own business and spur growth across the franchise system.”
But attractive financial offers and programs aren’t the only ways franchisors are connecting with entrepreneurs in the tough economy. Brand education and outreach have also become more important than ever. Franchisors must show that their concepts will be safe, lucrative investments for years to come.
Adam Povlitz, Anago’s Vice President of Operations, says discovery days are vitally important as they give potential franchisees insight into the company culture.
“When buying a franchise, a franchisee is making a huge commitment, sometimes life changing. We use our discovery days as an opportunity to get to know each other. Our close rate is nearly 100 percent once a prospect comes and meets us in person," he said. "We’re very family oriented which helps a franchisee trust that when they buy into the concept, they’re going to receive all the help and support they need.”
Couri stressed the importance of partnerships, especially for young franchises like We Do Lines.
“Setting up national accounts with premier vendors is a huge attractor,” he says. “Seeing a logo that’s 150 years old next to one that’s three years old is a huge help.”
With more and more upper management and executives facing downsizing, some issues affect the franchising industry as a whole.
“Some people feel franchising is going to be very restrictive and not let their entrepreneurial spirit come out,” says Walker. “But what could be better than buying a plug and play system that has already encountered and solved all the problems you will encounter when starting a business? It’s our job to let them know that.”
No matter the brand, franchisors are facing the fact that a sour economy means they must work harder to woo potential franchisees. With money-saving incentives and strong brand education programs, they might just have entrepreneurs seeing their glass half full.
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Brian Diggelmann
