When I was an award-winning franchise owner, I received many calls from people who were peforming due diligence in their effort to evaluate our franchise concept, for their own possible investment. The current franchise owners referred to these as “validation calls”, and we all remembered how important the feedback from existing franchise owners was in our own analysis of the business opportunity being offered by the franchisor. Each existing franchise owner had to decide how to handle these validation calls from people who were exploring franchise ownership, since the FTC requires that the names of all existing franchise owners are made available to anyone who was serious about evaluating the purchase of a franchise unit. Whether we were doing great, doing poorly, or just starting our business, each current franchise owner was going to receive a steady stream of validation calls, and we needed to determine our response to them.
I found the discussion with potential franchise owners fascinating. Sometimes they called me after they’d already spoken to several other owners, and sometimes I was their first call. Since the FTC requires full disclosure of all owners, the validation calls were usually random, so sometimes they’d spoken to existing owners who were unhappy with some aspect of their franchise ownership experience, other times the owner was very new and didn’t have much feedback yet, and then there were the owners who were doing well and provided positive feedback. Although each existing owner was disclosed, and we could expect to receive validation calls, that didn’t mean we had to talk to the validation caller. We could declare that we didn’t want to talk, or we could spend too much time talking to the validation callers, time we could otherwise be using to run our own business. As you can imagine, these calls are critical to the franchisor.
My strategy was to engage the validation caller and find out what was driving them to explore franchise business ownership. I enjoyed comparing my own experience to that of others. After a few years, a distinct profile repeatedly emerged. Most of the validation callers had a strikingly similar background to mine. Most were very well educated, had been successful corporate executives, were now out of work and nearing the end of a sabbatical period. They were having a difficult time finding a corporate position that was comparable to their former job, and their job search had crossed paths with a franchise consultant who ignited the spark of business ownership as an exciting alternative. You can add one more characteristic to the distinct profile of a validation caller: 99% had never owned a business before and they believed that franchise ownership as a less risky alternative to going independent.
Think about the description of the typical franchise prospect I just outlined above. Will today’s economy produce more or less of this profile? The labor participation rate in the U.S. is at an all-time low, so there are more and more people who have simply stopped looking for jobs, and many of them fit the profile of the typical out-of-work corporate executive I described above. AT 1.5% through September 2015 (average is 3.4% from 1947 – 2015), the US economic GDP growth rate is very low, which means that corporations are generally in a wait-and-see posture and are not aggressively hiring. However, a little research also shows that for the past five years, franchise businesses have been, and are expected to again grow faster than the rest of the economy in 2015.
So the answer to my question in the headline of this blog entry, is that I believe today’s economy will drive record numbers of people to explore franchise ownership. These are highly educated and successful people who are looking for an opportunity in a shrinking economy. Many of them will turn to business ownership in an attempt to replace their former income or satisfy their own dream of being a business owner. Franchisors who are prepared to engage with this growing group of savvy former executives, with innovative business opportunities that reduce start-up risk, will be the big winners.
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