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Destigmatizing Franchising for the Next Generation of Entrepreneurs

Franchising is sexy.

There. We said it. Part of our mission here is to make franchising cool for the next generation of entrepreneurs.

In order to do so, we want to help remove the stigma from the franchise business model. Because not unlike any industry or business model, potential owners come to franchising with preconceived notions. All of which are understandable, albeit a bit misinformed.

This article will focus on a collection of preconceptions people may or may not have about the industry (and those who are part of it), along with key insights to help clarify why franchising is such a fulfilling career opportunity.

Where The Stigma Originated

According to a fascinating expose from FranchiseTimes, franchising was an unregulated industry for decades. And in the 1960s and 1970s, it was infiltrated by a small faction of people who saw selling franchises as a slick way to get rich. Before UFOCs became FDDs and the FTC Rule became law, franchising carried a stigma perpetuated by crooks and con artists.

Whether it was promoters using celebrities to attract franchisees, fake offices selling fraudulent businesses, or naive investors sinking their life savings into schemes, back then, there was no way for prospective franchisees to know what they were buying. A franchisor would present whatever was needed to make a sale. The prospective franchisees didn’t know what questions to ask.

As the lore goes, Nashville attorney John Jay Hooker and his brother Henry talked country singer Minnie Pearl into lending her name to a fried chicken concept. Pearl came from an affluent family and the public would think it believable that her family had a good fried chicken recipe, John Jay Hooker said.

They went public and their stock soared from $20 to $56. But with no restaurant experience, the chicken was horrible, the financial statements were fraudulent and eventually most of the restaurants closed. This case is still cited in litigation books and the practice of claiming income before it’s been realized is now known as Minnie Pearling.

No wonder there’s so much stigma around the industry. Franchising didn’t exactly have the most trustworthy timeline.

Franchise Stigma You’ve Probably Heard

If you interviewed the average businessperson and asked them what they think of when they hear the word franchising, a few words come up. The first is probably fast food, especially McDonald’s. The most popular brand in the world started with one location in 1940. In 2019, they reported having over 38,000 stores worldwide. To call their franchise successful would be the understatement of the century.

But let’s unpack some of the stigma in more detail. Based on our experience working with franchisors and franchisees, here’s a collection of several common preconceptions potential franchisees may have:

Franchising is only for food companies.

Franchising is a boring and uncreative model.

Franchising is for brands that have sold out and lost their soul.

Franchising is a blue collar occupation with limited wealth opportunities.

Franchising leads to the decline and demise of the customer experience.

Sound familiar?

These myths are misguided. Our experience tells us that franchising is a lucrative, diverse, creative and engaging career path that many entrepreneurs may have passed up as being wholly serious. It’s an amazing opportunity, as long as potential owners are matching their skills with the right opportunity and the right timing. Especially if those people are in the second or third phase of their career, they may view professional satisfaction differently than they used to.

It’s not 1960. Or 1980. Or even 2015!

Times have changed. Regulations have improved. Technology has accelerated. Information is now accessible and free. Covid changed everything. And the workforce is shifting in powerful new ways. People are thinking about franchising in a whole new light.

Franchising isn’t a dirty word, it can provide people with a type of life they never thought was available to them.

What’s more, it’s safer now. There are also specialized franchise lawyers, associations, development firms and other organizations that understand the nuances of the state franchise laws that protect franchisees. There are tons of resources out there to help entrepreneurs avoid the mistakes previous generations made when information flowed less abundantly,

What We See On The Frontlines

We attend trade shows and conferences across the country each year, and the vast majority we meet from every walk of education and industry agree franchising is incredibly exciting. We’re seeing people creating generational wealth via franchising like never before.

At a recent conference in Las Vegas, some of the wealthiest people in the room were multi unit franchise owners. They may not have looked like Bezos/Zuck type billionaires or even hundred millionaires, but you’d be surprised just how wealthy you can get owning thirty Massage Envy stores or a fleet of Applebee’s.

We discussed this trend in our recent series about Franchising & Private Equity. For the last decade or so, we’ve been seeing more private equity firms aggressively entering franchising. For those of you who attend the IFA conferences like we do most years, there have been more and more sessions and workshops about how private equity plays a role in franchise growth. It’s official, private equity firms like franchises. Not all firms and not all franchises, but the wave of funds being put behind multi unit concepts is undeniable. We’ve seen notable franchises like Jamba Juice, Sonic, Zoes Kitchen, CorePower Yoga and Whataburger attract new investors from this financial pool.

Now that’s what you call cool. Franchising may be a non obvious path to entrepreneurship, but it’s one that’s only grown in legitimacy over the years.

Ultimately, as a franchisor, you have an opportunity to dispel the myths and provide potential franchisees with trusted information and shift the narrative.

If you accept that your prospects may have some preconceptions walking through the door, there’s no reason you can’t educate them into becoming an owner of a fulfilling business.

Why Franchisors Don’t Like Negotiating

The first impression that the franchisee gets from reading the franchise agreement is total incomprehension, unless they are well versed in legal terminologies and phrasing. The FDD is required to be in plain English but the franchise agreement has no such requirement. Typically, the franchisor’s legal department works extremely hard to secure the franchisor’s position through the Agreement and makes it impenetrable for someone who is not a lawyer to understand. The uniform nature of the agreement for all franchisees makes it assumed that the franchisee must sign the agreement so that all the franchisees follow the same terms. Even though that is partially true, the franchisee can plead their case and negotiate terms where they believe that they are offering something unique to the franchisor.

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