The New Traditionalists

As we all hope for the best in 2010 and realize we have weathered the biggest part of the economic storm, we need to look at the franchise development world differently--in this case, under partly cloudy skies.

1. Should I make a financial performance representation (FPR)? Yes! Any type of representation, oral, written, or visual, that suggests or implies a specific level or range of actual or potential sales, income, gross or net profits qualifies as an FPR. You can't make an FPR unless it is in your franchise disclosure document (FDD). Between 20 and 30 percent of all franchisors make an FPR, which means some of your competitors share their numbers with your prospects. What impression do you leave if you don't share yours? If you have solid numbers, consider making an historical-based FPR. If you do, the law allows you to make specific written representations outside the FDD about a particular location or highlighting specific variables (e.g., a kiosk variation to a traditional retail format). Without an FPR, you may not make financial representations on your website (the first place prospects check in investigating a concept) or anywhere else.

Despite the surging growth in franchisors using multi-unit development strategies over the past 20 years--especially the past decade--this approach is not always a sure bet for successful franchise growth, and certainly not for every franchisor. For example, the multi-unit model may make a great development tool for an established retail-oriented brand seeking heavy market penetration in a given territory, but it may not be right for a newer service-based brand testing a smaller market

Each year franchising needs debt capital in excess of $10 billion to fund more than 30,000 new units and transfers of existing units. That's a lot of money, and the lending community doesn't seem that likely to meet the demand--even though collectively there's ample lending capital available. It's clear that access to capital will be an issue for the franchise community for the next few years at the very least.

One of the significant consequences of the Internet's development is that we can gather opinions from a diverse group with minimal effort. I did so recently through a posting on the American Bar Association Forum on Franchising listserv.

Market dominance is the measure of the strength of a brand, product, or service relative to the competition. Emerging franchise companies that are the first movers in their market niche need to be agile to establish their market presence before more aggressive or better capitalized companies move into their niche and overtake their first mover advantage.