The Future of Franchises? Crowdfunding

“Electric” is the best way to describe the franchise business over the last few years. As many tire of working for “the man” and look toward their own future, franchising is an appealing way to create a new business without having to go through the process of starting from scratch. Although there are enormous opportunities now for people looking to launch their franchise, the real opportunity is coming quickly.

Equity crowdfunding – the act of bringing in capital from many investors over the Internet – is going through its last step (SEC rule-making) and about to become legal in the United States. This means that new franchisees are about to have a new tool to help finance their new business. For many brands (like McDonalds), the leading franchisees are first-time small business owners. Usually they put their life savings into their new franchised business, and take out some sort of loan to finance the rest. Instead of just taking a loan, what if they could take hundreds and hundreds of potential new customers and make them owners instead?

But the crowdfunding opportunity ultimately isn’t just one for the new franchisee – it is an unprecedented revolution in how brands are going to be able to expand into new markets with viral effect. As franchised brands move from market to market (attempting to penetrate new markets where there may be some brand awareness, but not much) there is nothing better than creating a loyal following of owners to drive the new business.

That is the promise of crowdfunding. For example, an ice cream brand like carvelCarvel is very strong in its native New York market. But the brand has extended to more markets, mostly on the backs of people who love their Fudgie the Whale ice cream cakes and have moved from New York to other cities. Now imagine if the love of Fudgie could be extended to more than just customers – it could be crowdfunded by large groups of loyal owners in new markets that would create an instant marketing machine. Driving large numbers of customers into the new locations, these loyal owners also gain the financial benefits of the new location’s quick launch and impressive revenue.

The new franchisee now has the advantage of a built-in marketing machine plus capital to grow. And the community has the chance to welcome the new business with open arms. It also is a strong way for racial ethnic groups to back people from their own community who want to get into a particular franchise. Diversity has been the buzzword in the franchise community for a long time now. But there is no really better way to ensure success other than giving potential customers something special – ownership.

The benefits of ownership include both financial dividends and owner loyalty programs.

Crowdfunding for franchises is good for the franchisor’s brand, the franchisee starting the business and the local community. Crowdfunding provides a win – win – win for everyone involved.

Jonathan Frutkin

Jonathan Frutkin is CEO of Cricca Funding, LLC. He’s the author of “Equity Crowdfunding: Transforming Customers into Loyal Owners” which is available in paperback, Kindle and audio book formats.

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