Peter Nowak is used to putting all his eggs in one basket. In May 2008, as the U.S. was in the throes of the recession, he founded Eggfast, a quick serve, breakfast-only concept. Now, even as established franchise systems are struggling, he’s preparing to start franchising the business in January 2010. But Nowak is not alone in his new franchising endeavor. Zoom Room franchised its brick-and-mortar dog-training concept in September; Bagger Dave’s Legendary Burgers & Fries just announced the launch of its franchising program in November; and Cornzapoppin Franchising LLC followed shortly behind with a gourmet popcorn franchise.
It might seem counterintuitive to be thinking expansion when the whole country has just undergone major contraction, but, for these entrepreneurs, the time feels right. Are they making a smart move — will 2010 actually be a great year to franchise your business?
“Newly created franchise programs will be in the right place for the post-recession business expansion that is sure to begin in 2010,” says Andrew A. Caffey, a leading franchise legal expert who cites the loosening of credit and lending and new government stimulus funds as the major factors that will spur such expansion. “This could be a fantastic year to launch a new franchise program.”
Christian Faulconer, CEO of Franchise Foundry, a franchise development firm, wholeheartedly agrees. “If you are willing to explore new growth strategies, I believe that 2010 will be a great year to franchise a business,” he says. “We are in the middle of a major transition in the franchise industry where old growth strategies are being challenged and new strategies are emerging.”
Alisa Harrison, Vice President of Communications and Marketing at the International Franchise Association, states that the IFA also expects existing independent businesses to turn to the franchising model to expand their companies. However, the precise numbers will depend on access to financing. The IFA’s Franchise Business Economic Outlook for 2010 predicts that the credit needed to meet 100 percent of the industry’s demand will fall $3.4 billion short.
For Eggfast franchisor Nowak, getting access to financing was his greatest challenge. Unable to get assistance from banks, Nowak had to turn to private investors, tap into personal savings, and rely on personal credit cards. He ended up investing more than $500,000 into the endeavor. Tight credit also ended up driving Nowak to the franchising model in order to grow Eggfast. “We felt that in today’s economic climate the ability for a company our size to raise sufficient capital to meet our expansion goals was very limited,” explains Nowak, who aims to sell five to 12 stores in 2010. “Instead, we concentrated our resources into building an extremely comprehensive franchise system and a corporate structure that enables us to operate as if we were a much larger company.”
The credit market’s crippling effects may be determining factors in whether 2010 is the year to grow a business through franchising. But they could also be the inspiration for a whole round of new franchise concepts to come down the pipeline. Caffey is working with one client who plans to franchise a service company that will help individuals reduce their credit card interest rates. “Other concepts generated from the crucible of a deep recession are no doubt emerging – varieties of financial services, money management assistance, assistance with new health-care services, and unique savings plans are all on the horizon,” says Caffey.
In the year ahead, we will surely feel the ripple effects of the recession, but those who can brave its waters may find themselves in a very strategic position. “Economic recovery times can offer advantages, and many franchise business leaders have been positioning themselves to take advantage of opportunities as the economy begins to recover,” says Harrison.
Nowak has enjoyed those advantages firsthand. “Our talent pool for employees is of a greater quality due to the job market,” he says. “We have been able to negotiate great deals on services. We feel if we can grow in these economical times we will flourish in the coming years as the situation improves.”
So is 2010 the year to franchise? Despite the financial challenges, many entrepreneurs are forging the way — and the experts are cheering them on. Says Caffey, “The ingenuity of the American entrepreneur is irrepressible.”
Before You Franchise Your Business . . .
While 2010 might actually shape up to be a good year to franchise a business, the waters are still rocky and require some careful navigation. So how do you know if the time is right? Christian Faulconer, CEO of Franchise Foundry, believes that 2010 could be the right time to franchise your business if:
- Your business is proven and profitable. “Being able to make an earnings claim is more and more important,” says Faulconer.
- Someone could purchase and open a franchise without depending on traditional lending. “Growth strategies that are dependent on traditional lending will struggle in 2010,” he says. “This doesn’t mean that your franchise opportunity should be inexpensive, it just means you should be willing to look at non-traditional funding alternatives.”
- You are ready to spend money on marketing. “Franchisors can’t rely on some of the old standbys when it comes to lead generation,” he says. “The old standbys like lead generation portals might be part of your strategy, but it can’t be your [only] strategy.”
Sara Wilson is a freelance writer who specializes in issues related to small businesses. Contact her at email@example.com