Understanding Your Competition as a Franchise Owner

Welcome to another episode of Atlanta Franchise Today with host Leslie Kuban, expert franchise consultant and owner of FranNet Atlanta. Atlanta Franchise Today is dedicated to bringing entrepreneurs and business owners the best practices and tips for their franchise goals.

When people start investigating franchises, they naturally start looking into the other competition that’s out there. Unfortunately, seeing this competition sometimes deters people from pursuing their dream of business ownership. Today, Leslie addresses franchise competition and provides perspective for aspiring franchise owners.

Transcription: 

Leslie Kuban:
Researching franchises is a little bit like going out and buying a new car. You go to the car dealership, you buy your red car and you drive off the lot. And all of a sudden you’re noticing all these other red cars out there on the road that you didn’t necessarily pay attention to before. Well, now your antenna is up for seeing red cars. And when you start researching franchise opportunities, you’re now looking at that business through the lens of owning it yourself. And you’re going to notice the presence of the industry out there a lot more than you did before. In other words, you’re going to see a lot of competition.

Leslie Kuban:
There are other competitors with other franchise brands and other non franchise chains. And most of your competition is always going to be small, local, independent businesses. In fact, about 80% of the small businesses out there are not a part of a franchise or larger chain. They’re local mom and pop family businesses. I’ve got a few takeaways for you in terms of how to look at competition in your research.

Leslie Kuban:
Number one is the presence of the competition is showing you that there’s a presence of demand for that product or service. People are buying and will continue to buy that product or service because they need it. Where franchising really wins is in large industries where the demand is high, it’s stable and it’s growing. And the stability of this demand is what makes the business model predictable. And that’s a key factor in long-term success of any franchise model, is that it is replicatable and predictable over the long haul.

Leslie Kuban:
So this is why franchising is really not appropriate for businesses that are in emerging markets or types of industries that change really rapidly. If it’s an emerging market, we don’t really have proof of demand yet. We don’t know what size of customer base is really going to buy that product or service in the long term. And if it changes all the time, we can’t create that stable enduring business model that franchisees can invest their future in over the long term. That’s why things like high tech services, software. We really don’t see franchising as an appropriate strategy for growth because it changes all of the time.

Leslie Kuban:
So the bottom line is seeing healthy, successful competition out there is the sign of stability. I’d actually be worried if I did not see some type of competition out there for the product or service I was interested in. I would be wondering, is there enough demand? Are there enough customers who need this product or service in this particular area?

Leslie Kuban:
I said franchising wins in competitive industries, so what do I mean by that? This leads to me, to my second point. Franchising brings a better mouse trap to the industry. And that’s what the special sauce is all about. There should be some kind of element in that business model that clearly makes it worth it to own that business as part of the franchise brand versus going off and starting it as a local independent. Now this special sauce could be a lot of different things. It could be growing brand name recognition, and it could be things that come from power and numbers. Such as better to real estate and location opportunities. It could be better access to supply chain, financing relationships, preferred pricing on equipment and inventory. In fact, one of the home services franchise companies I work with saved their franchisees over $55 million in discounts last year on the various things that they needed to run their business. Marketing is a huge area of competitive advantage for franchising. This search engine optimization power to create that online visibility that out markets the competition and dominates market share.

Leslie Kuban:
Now this mouse trap that I speak of, it’s not something that is necessarily different, unique, or better in the actual product or service itself. And this is my third point for you today. A lot of times I’ll hear people say, “I want something that’s really proprietary. There’s a competitive moat around it, there’s real differentiation.” And I would suggest that differentiation is in this mouse trap, not in the service itself. And I love to use hamburgers as a great example. I can go in my own kitchen right now and cook a better hamburger than I’ll be able to buy at McDonald’s. And I can point you to 50 other restaurants in the neighborhood that can do the same. But McDonald’s is the global organization that has a business system that sells billions of hamburgers all over the world every year.

Leslie Kuban:
So a few tips to think about as you start to do your research. Number one, look at competition as there’s proof of demand out there. There’s money to be made in this industry. Number two is to do your research. Start looking at, is the pie of customers growing in this industry? Think about the demographics. Some great examples would be the aging population. 10,000 people are turning 65 every day and will continue for the next number of years. So that’s a great area to look at servicing the needs of a baby boomer aging population. Pet care is another great industry. It was a hundred billion dollar industry prior to COVID, a year later, it’s now $103 billion industry and expected to see tremendous growth for the next 10 years.

Leslie Kuban:
And we’re all now working from home more often. Some of us are still teaching from home. We’re playing at home more often. So all of these industries catering to home services, home improvement are great examples of markets with those growing demographics. And thirdly, just simply go ask franchisees. Ask them, how does the franchisor’s business system, their mouse trap, allow you to compete effectively in the marketplace? Are you able to carve out your pie of success, even though there is other successful competition out there? And they’ll tell you what they’re really experiencing.

Leslie Kuban:
I hope this episode has been helpful for you and you’ve taken some key nuggets that will help you in your due diligence. I hope to see you next week. And thank you for joining me today on Atlanta Franchise Today.

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