Franchises Can Be a vSaaS Trojan Horse
We’ve already covered why franchising is a beautiful business model to power SMB transformation and build scalable, sustainable services companies far better than full stack tech-enabled services or traditional vSaaS. To recap, franchises have:
Better monetization from the royalty (7%+)
Better cash conversion from the upfront franchise free
Efficient path to market by selling a baked, repeatable P&L
Aligned incentives with customers (franchisees)
Capital efficiency, more focus, and a smaller balance sheet by outsourcing operations
But the best in breed franchisors can also make efficient use of early stage risk capital (venture) to build/buy/use software to transform the business of franchising itself.
There are three levers a (tech-enabled) franchisor can pull to use software to improve the business, out-perform traditional incumbents, and produce big outcomes/returns:
1. Pull forward the timeline to franchising
More scalable, software defined logic means the system is not as reliant on error prone judgement, making it easier to sell units/the system externally. So even with less data/fewer corporate units, you should be able to show lower variance and a tighter range of outcomes. It’ll take years instead of decades to franchise.
2. Improved unit economics (for both sides)
Automate, streamline, and standardize operations and drive revenue with #basic stuff like online bookings, optimized scheduling, invoicing, customer messaging, etc. You can keep more of the top-line if there’s more bottom line profits to go around.
3. Improved corporate economics
Monitoring franchisees, launching units, franchisee marketing, quality control, and support are all very manual today. To any extent you can put leverage against those with software you can control corporate costs and win back OpEx. Separately you can turn shared franchisee expenses into revenue(embedded fintech, payments, GPO, etc.).
So What?
Our push into franchising isn’t a lark. It’s deeply intertwined with our history as software investors. If franchisors can learn to work with and take from the best of SV, the opportunity to build huge, cash-flowing businesses is unbounded.