When it comes to starting a business or taking on a side project, franchise models have long been front and center for aspiring entrepreneurs. Franchises are so popular, in fact, that they have come to dominate the United States’ business landscape and you usually cannot pull into a shopping mall without seeing at least one franchise.
Their popularity stems from the fact that franchises give entrepreneurs a structure to work within while letting them build their own business.
When most people think of franchises they usually get an image in their head of McDonald’s, Wendy’s, or any number of similar fast-food restaurants. However, if you think of franchises and assume that you need to own a McDonald’s, then you should know that there are plenty of other avenues that you can explore.
This article will explore how franchise models have adapted to changing customer needs.
Why the Franchise Model?
Franchises have been a staple of the American business landscape almost since its inception and it is easy to see why. Franchises tend to be very successful because they take an already successful business and simply multiply the number of locations. In the process, they distribute ownership of the business and allow for new entrepreneurs to take advantage of already successful business models. Along the way, they create lots of value for the customers and money for their owners.
The most common image that comes to mind when thinking of franchise businesses is by far the fast-food restaurants. Popular movies like The Founder have even hammered home this stereotype. However, the franchise model is most definitely not limited to fast-food burger joints anymore. Many people may not know that already well-established companies like UPS and IKEA are also franchise companies operating under independent owner agreements.
New Needs Mean New Franchises
The world of business is constantly changing and very quickly. In fact, the majority of the world’s most valuable companies today (Amazon, Facebook, Netflix, Google, etc.) barely even existed 20 or 30 years ago. This is because the needs of consumers are constantly changing and entrepreneurs adjust their product offerings to fit those needs. In some cases, entrepreneurs even create better products before the consumer realizes that they need them. This is what happened with Uber.
Uber completely flipped the taxi industry on its head when they first launched by offering consumers a much better alternative to taxis that had never existed before. By choosing Uber instead of a taxi, consumers would receive:
- A price guarantee (knowing exactly what they would be charged).
- The ability to know when their ride would be able to pick them up.
- The ease of paying through an app instead of using cash.
By offering a superior service, Uber quickly grew to be far bigger than any taxi company. This type of innovation happens in all different types of industries and it has happened with franchises too.
When the idea of franchising a business first became popular, it was such a simple idea. Take an already successful business and license people to open them. To date, there are nearly 800,000 franchise establishments in the United States. Just like regular businesses are constantly rethinking their business models, so are franchises.
One example of how franchises have adapted their business model is by doing their best to be known as “recession-proof”. This is achieved by diversifying the number of ways that the franchise earns money. For example, if a franchise makes money by selling coffee then they will be put in a tough place if the price of coffee beans rises. If the price of beans rises too high then they will need to raise prices and risk losing customers and even being put out of business.
However, if this franchise sells coffee in addition to products like food, ice cream, books, and collectibles then they will be protected from a sudden increase in the price of coffee beans. This might still hurt the franchisee’s coffee business but it is unlikely to drive them out of business completely because they have a few other ways that they generate revenue that are not impacted by coffee beans.
By implementing changes like this, franchises can be more safe and lucrative than ever before.
New Franchise Models
In addition to the traditional fast-food franchise (McDonald’s, Chick Fil A, Wendy’s, etc.) there are a few different types of franchises that entrepreneurs can start. Here are a few of the most common:
Job franchise | These are incredibly diverse and are usually small operations. This means that a franchisee can get started with a modest sum of money and minimal assets.
A few examples are coffee vans, property/home improvement services, plumbing, commercial and domestic cleaning, cell phone accessories and repair, real estate service, pool maintenance, corporate event planning, children’s services, etc.
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Business format franchise | In this case, the franchisor offers a detailed plan and on almost every aspect of the business prior to the franchisee getting started. They will also provide initial training and ongoing support. This is the most popular type of franchise system and the one generally referred to when talking franchising.
Examples of business format franchises are fast food restaurants, gyms, or similar types of businesses.
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Investment franchise | These are usually large-scale projects that require a lot of upfront capital like expensive hotels or restaurants. The franchisee invests the money to get ahold of the brand name and then usually uses their own management team to run the business. |
Conversion franchise | This is a slight modification of the traditional business format franchise and is when local businesses in the same industry are converted into franchise units.
Examples of industries that extensively use conversion franchising are real-estate brokers, florists, professional services companies, home-services, like plumbing, electricians, air conditioning, and so on.
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Product franchise | This is when a franchisor allows a franchisee the right to sell their licensed, branded products. A good example of this would be a local hardware supplier selling John Deere lawnmowers, Goodyear tires, and Pepsi.
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- Job franchise – These are incredibly diverse and are usually small operations. This means that a franchisee can get started with a modest sum of money and minimal assets. A few examples are coffee vans, property/home improvement services, plumbing, commercial and domestic cleaning, cell phone accessories and repair, real estate service, pool maintenance, corporate event planning, children’s services, etc.
- Product franchise – This is when a franchisor allows a franchisee the right to sell their licensed, branded products. A good example of this would be a local hardware supplier selling John Deere lawnmowers, Goodyear tires, and Pepsi.
- Business format franchise – In this case, the franchisor offers a detailed plan and on almost every aspect of the business prior to the franchisee getting started. They will also provide initial training and ongoing support. This is the most popular type of franchise system and the one generally referred to when talking franchising. Examples of business format franchises are fast food restaurants, gyms, or similar types of businesses.
- Investment franchise – These are usually large-scale projects that require a lot of upfront capital like expensive hotels or restaurants. The franchisee invests the money to get ahold of the brand name and then usually uses their own management team to run the business.
- Conversion franchise – This is a slight modification of the traditional business format franchise and is when local businesses in the same industry are converted into franchise units. Examples of industries that extensively use conversion franchising are real-estate brokers, florists, professional services companies, home-services, like plumbing, electricians, air conditioning, and so on.
We hope that you have found this article valuable when it comes to understanding how franchise models have adapted to changing customer needs. If you would like to learn more about how Transblue adapted their outdoor project services model to emerging customer needs click here!
