Wednesday, August 31, 2016

Breaking Loose

Some graphs speak for themselves. 

This one tells the story of Blockbuster Video and its demise. The company’s sad end is a case study in how big beasts can be brought low by interrupters — and that within a very short period of time. Netflix entered the market more than ten years after Blockbuster was founded. In 1997, the video rental chain operated almost 4,000 stores in the United States alone. The bitter irony is that just three years before its peak, Blockbuster turned down the opportunity to acquire Netflix for $50 million.
By that time, it was already too late as is obvious now. Netflix had been offering DVD-by-mail rentals since 1998. Blockbuster waited until 2004 and never caught up. Netflix inflicted a mortal wound in 2007 when it introduced streaming services. What had turned to a steady decline for Blockbuster starting in 2006 turned into a bloodbath from 2009 onwards. The company declared bankruptcy in 2010. Four years later, the new owners Dish Network Corp. closed the last company store. As of 2016, all of 14 franchised stores remain open worldwide. That is down from a peak of about 9,000 global locations.
Over the same 2009 to 2015 period, the average hour a Netflix subscriber spends watching the company’s content increased from 15 minutes to almost 2 hours. Worldwide streaming usage hours rose from about 1 billion to over 40 billion.
Size, brand name and market experience don’t count for much if you fail to notice crucial trends.

  • FRANdata
  • The Economist
  • Bloomberg

Tuesday, August 30, 2016

Taking Your Brand to Europe

Taking your franchise brand to Europe is a huge step. Your international franchise consultant has helped you with feasibility studies, your training manuals have been translated and you are making progress finding that elusive “perfect master franchisee partner”. Most importantly, local customers will be willing and able to pay for your product.
However, have you ever wondered about how they pay? If you’re coming from the United States and are used to operating fancy tablet POS and the likes, forget about a credit cards. Debit cards, yes. People have them. Yet, depending on the European country you enter, you may be in for a surprise. 
According to a recent article in The Economist, Swedes fall over laughing when they see tourists making a dash for the next ATM. No wonder, when only 5-7% of payments are made in cash. Cash is so 20th century that Sweden’s largest bank operates only eight (that is 8) retail branches that handle cash.
Go south, and the picture looks very different. Italians love their coins and notes. The Boston Consulting Group estimates that your average Italian made only 67 electronic transactions in 2015. Up in Norway, that number was 456.
You’d think the technophile Germans use plastic a lot – but they don’t. They made less than 50 electronic transactions last year. In fact, plenty of shops don’t accept anything but cash. Try getting some bread in my neighbourhood bakery. No cash, no bread.

So, after all is said and done, make sure you plan for handling more cash than you might have expected when expanding into Europe.

Monday, August 29, 2016

Drum Roll for Low Investment Franchises

Low investment franchises have enjoyed some good press recently. And why not? They allow prospective franchisees on a low budget and unwilling or unable to get a bank loan to start their own business.
Time to take a look at the size of the “low investment” franchise brand market in the United States. There are around 4,000 active franchise brands in the country. Of those, about 10% require an average initial investment of below $50,000, a threshold after which most cannot rely on savings, friends and family and perhaps a credit card to find the necessary funds.
  • Prospective franchisees on a budget should take a closer look at three industries:     Business Related
  • Health & Fitness
  • Maintenance Services

Combined, they account for just over 20% of all franchise brands in the United States and well over 35% of brands requiring an average initial investment of $50,000 or less. Prospective low budget franchisees have quite a number of concepts to choose from.

Can franchisees make money with a low investment brand? Of course, some can even become very affluent. It’s a simple numbers game. Say, you buy a truck to operate within a maintenance brand, or you invest into a personal trainer franchise. The amount of money you can make with one truck is finite and the same applies to the number of customers you can train. As with all businesses, the return on your investment depends on how much you re-invest in your shop.
The same applies to franchisors. The initial training for a cleaning brand requires fewer resources than for system that is based on complex processes. Still, franchisors need to price their initial training as well as their ongoing support relative to the services they provide. Any brand, regardless of the industry and the required initial investment needs a franchisor who selects qualified franchisees, monitors his franchisees’ performance, and knows what to track and measure. The franchisees are already invested. They need a franchisor that has skin in the game and enables them to succeed.
How can a low investment franchisee find the right brand? Some industries will be out of reach. If your budget is not more than $50,000, forget about hotel brands, full restaurant brands and pretty much anything that requires substantial real estate. Instead look out for stable systems that enable their franchisees to get beyond that one truck or kiosk. Talk about the initial and ongoing support. Find out whether the franchisor is interested in organic growth rather than simply signing up anyone with the required investment. 

Friday, August 26, 2016

How Much Do $100 Buy in the United States?

The Tax Foundation created a map showing the value of goods that $100 can buy you in each of the states. Mississippians get the biggest bang for their buck. With $100 you get $115.34 worth of goods compared to the national average.
In California your $100 drop to just under $89 and in New York, the same $100 buy you $86.43 worth of goods compared to the rest of nation. With Manhattan and other leafy neighborhoods in NY and Los Angeles and San Francisco in CA, there are little surprises about some of the most expensive places to live.
Where do you get the least value for $100? In the District of Columbia, also known as Washington, DC. Residents of the nation’s capital lose over 15% in the value of their hard earned dollars.

The city’s current local minimum wage of $10.50 is well above the federal rate of $7.25. However, DC’s rate looks a little less comforting when viewed against how much it actually buys you. Compared to the national average, these $10.50 are worth about $8.90. No wonder the city just approved the next raise to $15 an hour.