How to Better Understand the Next Generation of Franchise Owners

Transcription:

Leslie Kuban:
Edith, welcome to the show today.

Edith Wiseman:
Thank you, Leslie. It’s absolutely a pleasure to be here.

Leslie Kuban:
Well, that is a very intriguing introduction. Tell us a little bit more about that and what that means and what you guys do over at FRANdata to have such impactful results for your franchise clients?

Edith Wiseman:
Thank you. Yeah, it does feel good to have people say that. The first time I was ever referred to as “the woman who saves me money” was one of the top SBA lenders. And that’s how he introduced me to his entire team, because we do franchise credit scoring on every single franchise brand. That helps lenders make decisions on A, whether to lend to a particular franchisee, associated with a franchise system, and then B, at what kind of terms. The gentleman, who shared that he wouldn’t have grown without us, actually shared this after he had sold off the brand and moved on. When he said that, I said, “Oh my gosh, I need to put that down in writing.” But we helped them through various stages with benchmarking, competitive intelligence, and access to capital. That’s the reason why he said “couldn’t have done it without you.”

Leslie Kuban:
That’s a great story, that’s a great story, Edith. Before we started the interview, we were talking about how the year is off to such a fast start for you, that franchising exploding, there’s a lot of optimism coming into 2022. Just what are you seeing on your end? Unpack that for us a little bit.

Edith Wiseman:
Yeah. We’re seeing franchisors and private equity firms who are tackling different issues. I think, for overarching, everybody is very optimistic about 2022, and they’re trying to make sure they have the right plans in place in order to achieve the success that they think they will. Whether that’s looking at things like growth plans or pricing strategies to the consumer or to proprietary products, the topics range significantly in terms of how to get those plans in place and how to look at them the right way.

Leslie Kuban:
What kind of data…? You’re a market research firm, and you’re compiling and curating different categories of data. What are the most popular types of data that you find franchisors inquiring your services for or purchasing from you? What are they looking for?

Edith Wiseman:
It’s a good question. I’d say the most popular and the easiest to understand is growth expectations and pricing. How do I price my opportunity to maximize what I’m trying to achieve? And those objectives vary. But what I would say, those are common, and they’re often easier to get a definitive outcome. I think the more interesting projects and research that we do are when we’re looking at a topic where it’s the industry is facing, everybody in the industry is facing an issue. We’re bringing together groups of franchisors’ input, up to 30 brands to say, how are you tackling this issue? And all of that information is confidentially compiled with an executive summary, so all participants receive insights. And that can be on remodeling requirements, third party delivery, pricing. The topics there range, but it’s more the methodology of how to collect those insights in terms of making decisions on how to move forward.

Leslie Kuban:
In terms of growth plans, something a franchise brand always has to be thinking about is, in what way, and to what extent does it make sense to continue to expand their franchise offering and how that evolves, which leads to what we’re talking about today is this next generation of franchise owners. I heard you speak about that at one of our conferences recently, how this is a big topic, and it’s important topic. I’m going to ask you to unpack that for us. Why is this a hot topic, and why does it matter, this next generation of franchise owners and what that looks like?

Edith Wiseman:
I think one of the drivers behind this topic is that brands are trying to understand if there’s an ability to increase the pool of potential franchisees to own a business. I think the second driver is just due to aging franchisees. For a lot of franchise brands, the average age of ownership is over 50 years old. And these franchisees may have been running their business for decades, or they’ve retired from, say, another career, and they’re now starting into franchising.

Edith Wiseman:
But either way, what they’re looking for is an exit, and they have a specific time horizon. I think back to, we were doing a project where I was talking to a Dunkin’ Donuts franchisee, and the project was around interest in developing other brands and market testing a specific brand relative to a multi-operator. We asked, “What would you be interested in growing with another brand?” And his bottom line was, “look, if I were you younger, absolutely. But I just don’t have that much time, so I have limited expansion opportunity just because of how old I am.”

Edith Wiseman:
Those are the two drivers behind looking for the next generation of franchisees.

Leslie Kuban:
As part of that, looking for new and different franchisees, is it a lack of interest amongst second- or third-generation franchising, meaning the children of franchisees, not necessarily being interested in taking over mom and dad’s business? Is that part of what we’re talking about here?

Edith Wiseman:
Yes. There is a little bit of that, though there are second-generation franchise owners that happen. There are certain brands that actually do that very well, where it’s part of the culture to have a multi-generation franchise owner. But some may not have children who are interested, may not have grown up in the business, or just they haven’t owned the business long enough to think about it that way, or didn’t get involved in the business for that intent of purpose to begin with.

Leslie Kuban:
What are you seeing franchisors start to think about and plan for? Maybe the difference of who they’re going after as franchise candidates versus who is coming to them, inquiring about franchise opportunities. Is there a difference there, and how are they handling that?

Edith Wiseman:
I’m going to overgeneralize, because franchising spans 230 sub-sectors, so what I say does not necessarily apply to everybody. But I’d say for a lot of brands, the type of person that they’re trying to attract is what we refer to as a corporate refugee, someone who has the management experience, who has the capital to apply to growing, to owning and growing a business. But there are brands that want us go a little bit downstream to the younger generation or to underrepresented groups, say, owners that reflect their customer base, or depending on their current strategy. If their strategy today is that they want an owner-operator, that they might want to change that to what we call a business builder. Depending upon where the brand is today, that’s where we’re seeing them look at for the next generation of franchisees as potentially expanding the base.

Leslie Kuban:
Are you seeing any particular strategies that franchisors are testing, experimenting with to attract that a bit of a different owner than who their poster child has been?

Edith Wiseman:
Yeah. We oftentimes are looking at the incentives that franchisors offer to franchisees. And I think that gives a lot of insight into who they’re trying to attract. There are franchisors that are offering perspective franchisees that are in… They’re basically called referral incentives. Paying franchisees to recommend it to their friends and family, that is trying to get more of the same. Or incentives for veterans. We’ve seen newer incentives around what is called DiversityFran. Basically, these are special incentives for minority communities. Or incentives for first responders, for people who have already had experience in the industry. And the final incentive is just franchisees that are committing to open units faster than what they would typically expect.

Edith Wiseman:
The sales incentives offer some insight into what franchisors are looking for, but we also see special programs that franchisors are either investigating or they’ve already set up. For instance, I’ve worked with a franchisor that’s spending a lot of time trying to figure out how to have more female owners. They want to understand what motivates them to invest in a business. Who are the types of women that want to own a business? And once they understand that, then they know where to find them and how to speak their language.

Edith Wiseman:
We’ve also seen other franchisors that have unique programs that are saying, “Okay, if you have a certain number of years of experience in the industry, or you’ve been an employee of a franchisee, then the franchisor will actually provide financing to help that individual get into business.” That is helping someone who might not be capitalized to otherwise be an owner. There are brands like Little Caesars and Marco’s that actively encourage their employees to become franchisees. Those are some other examples.

Edith Wiseman:
In one case, there’s a franchisor who refunds the franchisee part or all of the initial franchise fee, if the franchisee achieves certain performance metrics. In other words, what the franchisor is doing is they’re basically taking on more risk for a franchisee that may not qualify based on other characteristics, and typically they’re financial. But as long as they’re showing performance, then they’re rewarding that franchisee.

Leslie Kuban:
Do you see a typical tipping point that the brands that are in a position to take more risk and offer these types of incentives to franchisees who they want, but otherwise might not qualify on some measure? Is it 500 units? Is it a thousand units? Is there any sweet spot, where you see them being in a position to be able to offer such incentives?

Edith Wiseman:
I’m thinking of a small brand, a smaller brand, I’d say a few hundred units, 200 units, that offers employee-to-ownership programs with a financial incentive. I’m not sure that I have come across smaller brands that are able to provide that level, though it depends on their owner. If they’re owned by, say, private equity, then they might have the financial wherewithal, even though the brand itself is small, the company that they’re a part of might be large. That has a different twist.

Leslie Kuban:
Yeah, the private equity element is interesting. It seems to be growing, growing at a good clip. How is that showing up on your end in the data that you all are curating? How is private equity showing up at the party, or how is that changing?

Edith Wiseman:
Well, there’s two different ways to look at private equity, because there’s private equity that invests in franchisors, and then there’s private equity that invests in franchisees. We’ve seen private equity show up as a new generation of franchise owners, because there’s two things that affect PE franchise ownership is that they’re seeing these aging owners, and they’re seeing an opportunity to buy family-owned firms, which is the most attractive ownership potential. Then they buy these family firm with the view to grow them, both organically and through acquisitions of other smaller operators. That’s one way that private equity is actually influencing the next generation franchisee.

Edith Wiseman:
The second type that I’ve seen are PE owners, they’re basically recent business school grads. They have a significant network in order to raise funds, and they tend to be younger, smart, incredibly ambitious, and they want to grow. And they want to grow through acquisitions and less through development. So we’ve seen some franchisees become very large overnight through this strategy.

Leslie Kuban:
That’s exciting. It’s really exciting to hear how these examples of how franchising is seeing opportunity in other camps of individuals and populations that can make for great franchise owners, but who are different than that typical… We love the corporate refugee. They bring a lot of talent and a lot of opportunity and growth and positivity to franchising. But there are other opportunities for growth that franchisors are tapping into as well. That’s really exciting to hear.

Edith Wiseman:
Yeah. What I find fascinating is just through these examples you see, you’re trying to get people who really can’t be business owners because they’re not financially qualified, all the way up to very large private equity firms. It just goes to show you how diverse franchising is.

Leslie Kuban:
We do, on the show, have a lot of viewers who are exploring entrepreneurship for the first time. They’re thinking about franchising as a possible avenue for their business ownership goals. You sit in this very interesting spot. Do you have any thoughts or advice for that person who’s dipping their toe in the water and starting to learn about franchising as a possibility? Any resources that you point them to or thoughts that you have for that audience?

Edith Wiseman:
Yes, I do. I’ve had the opportunity to talk to a lot of companies that are thinking about franchising. There are some things that I’ve walked away with after all of these years. That is my advice. I’d say my sage advice is franchising is not a get-rich-quick scheme. Number one, you should not be entering franchising if you think it’s just a fast way to cash. The second is that you shouldn’t be going into franchising because you’re sick of what you’re actually doing. If you’re not enjoying the business that you’re in, which is operating whatever… If it’s a cleaning business, you no longer want to do that, franchising is not going to be your solution.

Edith Wiseman:
I have a lot more negative things to discourage people to becoming a franchisor than I do then initially, because to me, franchising is a very long-term growth strategy, where you need to be very careful about the vendors that you work with, the franchisees that you choose, because it could mean growth, sustainable growth, where you’re not risking someone else’s livelihood in the process of your get-rich-quick scheme. This is you’re actually trying to build sustainable businesses, and you feel that emotional responsibility to these other people who are joining your system, because otherwise, it could end up as financial heartache for everyone. That’s my cautionary tale.

Edith Wiseman:
I think the first thing that I tell people to do is look at your financial value proposition before you go anywhere. I’ve talked to some lovely business owners, where they’re running a nice business for themselves. But it’s not scalable because what it presents to other people, there’s not enough of a foundation to grow. I would say first look at your financial value proposition, and you can compare it against other franchise opportunities that your potential franchisee prospects might be assessing. This is something that we do regularly for clients. What is your financial story, and how is it being told? Because that is a critical question. Your business might be really cool otherwise, and you might have all sorts of media attention, and there may be some great things, but if you don’t have that foundation, then you can’t offer that to somebody else and expect them to want to pay you for that business-in-a-box.

Leslie Kuban:
We’re talking about responsible franchising. We talk a lot about that on the show. I’ve had a number of guests where we’re posing the question, “Okay, I’m an entrepreneur. Maybe I want to grow my business through a franchising strategy. Am I really ready?” And you’re really hitting the nail on the head that it is an expensive long-term proposition. And I think this is a good point for the individual potential franchisees, looking at the hundreds, maybe even thousands of different franchise opportunities that they could consider as a business they want to own. You have to assess the viability of the franchisor and their ability to be in it for the long term. Thank you for sharing that.

Edith Wiseman:
My pleasure. Thanks for asking.

Leslie Kuban:
So Edith, you are a icon in your own way in the franchising industry, and we all have our mentors and people we look up to. I’m wondering who in the world of franchising have you found as being a mentor or someone you admire that you might like to give a shout-out to on the show?

Edith Wiseman:
Honestly, this is a little bit tough because I’d have to say that every client of mine throughout the years has been a mentor. The reason why I say that is because what I get visibility into is how people think about problems and the opportunities within the franchise relationship model. I really have to say every client engagement that I’m privy to be a part of is I learn something not only from what they’re telling me, what their problems are, how they’re assessing it, what they think is the outcome, but then also what we end up delivering and their reaction to that, and how they then implement whatever it is that we’re sharing with them.

Edith Wiseman:
But if you were to push me to say, “I need a name, Edith,” there’s the people that I admire most in this industry are those that are first of all, always wanting to grow and learn. They also participate in our research because they want to learn. And that list is really long. But the people who come to mind off the cuff are folks like Tom Monaghan from CertaPro, or Steve Dunn with Denny’s, Mike Isakson with LYNX Franchising, Jim Amos, Joe from Inspire.

Edith Wiseman:
There’s people who we regularly get input from, who want to learn. And to me, as a franchisor, there’s so much changing constantly. You have new competitors coming to the space, who are bringing new ideas. The franchise model is changing. Regulations are changing. And if you’re not looking to stay on the cutting edge, then businesses either grow or die. Those who are constantly learning are helping their businesses grow.

Leslie Kuban:
I appreciate your pain on that. I too have an unlimited number of mentors and people I admire that would take me an entire show to list. So thank you. I appreciate that. This has been fascinating, Edith. If people are interested in learning more about the services that you guys offer at FranData, what’s the best way to get in touch?

Edith Wiseman:
Our website. We have two websites, FranData.com and franchiseregistry.com. Franchiseregistry is more for lenders and for franchisors who want to help their franchisees get access to capital. And for FranData.com shares all the services. There are some reports you can download to learn about the industry. I would just say, if you Google FranData, you’re going to get a lot of research. We’re IFA partners, research partners. If you put FranData IFA research, then you’ll get a whole host of good insights about the industry, like the economic forecast and a variety of other topics.

Leslie Kuban:
That’s great, Edith. We’ll be sure to put those resources in the show notes. Well, thank you so much for joining me. This is really interesting, and our viewers are going to get a lot out of watching the episode. Thanks so much for joining me today.

Edith Wiseman:
Really appreciate you, Leslie

Leslie Kuban:
Folks, thanks for joining me on another episode of Atlanta Franchise Today. I hope you this as informative as I did, and I look forward to seeing you next week.