Franchise Predictions for 2010

Recall that I recently posted a series of questions to experts in franchising--Richard Solomon, David Azrin, and Craig Slavin--concerning the “current reality” faced in the industry. My thinking is that having a vision, a purpose, is one of the keys to creating a great company, but rather than work at 40,000 feet it’s better to start with what you know: the current reality of the situation you’re faced with.

In this follow-up post I asked each expert to predict what will happen this year in franchising. What I’m actually doing is setting the stage for creating some strategic thinking within the franchise space. We started with the current reality, we’ll focus here on what we think will happen, and I’ll finish up with a wish-list of things that each expert would like to see happen.

So, here are the predictions.

Richard Solomon: I will continue to thrive on the abuses in franchising. It is like being a funeral director in a pandemic. YEA!!! Secondly, franchisors will continue to make short term decisions for immediate revenue optimization because they have no faith in the durability of their own concepts – get ‘em while they’re hot and bury ‘em when they’re not.

David Azrin: Unfortunately, I see that many franchisees will not make it through the tough times.  There will be further closures of many units.  Systems that grew too fast and have many poorly performing franchisees will not fair well.  Savvy franchisees will start looking for quality systems which can demonstrate good performance with financial performance representations.”

Craig Slavin: “Margin of error” is no longer an option: In the past, if an error was made regarding a candidate or a franchise was sold for the sake of generating revenue, many companies were able to absorb this problem by either selling more franchises to replace the poor selection or they paid to disenfranchise the entity. The legal costs of the “ations” – arbitration, mediation and litigation are huge and increasing everyday and the costs of selling new franchises are higher than ever before because of the crowded conditions.

Secondly, financing of small businesses is never going to be like it was in the past. First, lenders are going to be more interested in seeing the profile of a candidate the franchisor is recommending to get financing. That means up front qualifying of franchise candidates is going to change. Just having the capital is no longer the main qualification of a candidate. They must be a good fit for the business model. Also, more non-traditional methods of financing will appear including Micro-financing.

Thirdly, social networking will be used at both the consumer and franchise levels. Right now Facebook and Twitter are great outlets for building a brand and increasing consumer participation and loyalty. However, the next and newest step will be integration of social media into the franchise buying process, which cannot and should not occur in traditional social arenas.

Peter Birkeland: A bad economy exposes weak business models like no other. We’ll see continued struggles with weak companies and an overall slow-down in growth for good models, primarily because the free flow of capital is constrained right now, and most likely for the foreseeable future.

The best companies will re-think their models and figure out that for the next several years, growth will have to come internally and not through the sale of units. In this scenario the best companies will re-focus their efforts on generating better skills among existing franchisees, create grass-roots marketing campaigns that target consumers, and move towards a more collaborative, rather than competitive, relationship with franchisees in the system.

Any other predictions? Add to the comments section!

Peter Birkeland, Ph.D., is the author of “Franchising Dreams,” a speaker, and a contributor to this and many other publications. Peter helps entrepreneurial and mature companies to realize productivity improvements and create strategic growth. He can be reached at Peter@birkelandinstitute.com