November 2014 Archives

When you hear the word "franchise", most of us think immediately about Subway, McDonalds and many others. Traditional franchise opportunities have been brick and mortar locations that allow entrepreneurs to "live the American dream." Times are a changing.

Enter social networking. You may ask yourself, "What does this have to do with franchising?" Wait for it...

Prior to what we think of today as a social network was the Bulletin Board System (BBS) in the early 1990s. This was a community built around the dial-up modem that allowed people to connect, communicate, upload and download files among other things; the precursor to the Internet itself. As the Internet and the World Wide Web were born (thanks Al Gore), more and more services have strived to connect YOU to the rest of the world.

Then in 2004, a Harvard graduate named Mark Zuckerberg changed the world forever creating Facebook. When his company went public in 2012 everyone wanted a piece of the action. At 1.3 billion users and a $200 billion valuation later, Facebook is here to stay and social networking has become an integral part of our existence. Now when you hear the words "social network", most of us think immediately of Facebook, Twitter and Instagram (oh wait, that would still be Facebook).

Fast-forward a year. By now you are likely familiar with another popular social networking service, Snapchat. Snapchat allows individuals to send a photo, video or text message that disappears after a few seconds.  You may also remember Snapchat turned down an offer from Facebook for three billion dollars in late 2013. Three BILLION dollars! At that time it was a huge head scratcher as to why they would turn down such an offer. In recent weeks, this has become much clearer.

Snapchat is now looking to grow the value and usage of its app.  They announced a joint venture with Square Cash to create Snapcash.  The Snapcash feature allows you to add a debit card to your account to send cash payments through the app for free (for now).

Additionally, they also have been looking to leverage live events with a feature they call "Our Story". 

Users attending an event submit photos and videos, which create a "Story".

Although the Snapchat team curates the "Story", the idea of leveraging events through social media is important and an untapped concept.

Now the question is, if Snapchat were a franchise and people were willing to pay you hundreds, or even thousands of dollars per event, would you buy that franchise? How about Facebook or Instagram? Is it possible to franchise a social network or a mobile app for that matter? If they did, how would it look? How could it be monetized?  How much would you want a Facebook franchise?

Carol Travis and Elliot Aronson have written a throughly entertaining and accessible book about self-justification, Mistakes Were Made (But Not by Me): Why We Justify Foolish Beliefs, Bad Decisions, and Hurtful Acts.  We can all profit from their science.

From the introduction, "the Social Brain is wired for Self-justification.

When we make mistakes, we must calm the cognitive dissonance that jars our feelings of self-worth.

And so we create fictions that absolve us of responsibility, restoring our belief that we are smart, moral, and right --a belief that often keeps us on a course that is dumb, immoral, and wrong."

Here are some of their observations, which are relevant to both prospective franchise operators and sales.

1. On the value of Franchisee Testimonials.

"The more costly a decision, in terms of time, money, and inconvenience, and the more irrevocable its consequences, the greater the dissonance and the greater need to reduce it by overemphasizing the good things about the choice made."

If you are looking to purchase a franchise, then don't look to the existing franchisees for information - if they are doing poorly, their brains will engage in self-deception trying to convince you of how good their choice was.

Instead, you should get in touch with other individual making the same pre-purchase decision - individuals who have not been to discovery day or who have been in contact with the franchisor.

2. On being Confident:

"The weakness of the relationship between accuracy and confidence is one of the best-documented phenomena is the 100-year history of eyewitness memory research."

I would remove the qualifier "eyewitness memory research."

When reasoning about decisions, we have to make room for the possibility that even once we have chosen, we may be wrong.

For some major decisions, buying a house or car, if we are wrong we can sometimes sell and recover a large part of our investment. But for franchises, selling a money losing pit is not a realistic option.

Therefore, you have to plan for when your decision turns out wrong. What will you do?  Think about that now.

3. On Learning from your Mistakes.

"One lamentable consequence of the belief that mistakes equal stupidity is that when people make a mistake, they don't learn from it. The throw good money after bad, and the con artists are right there to catch it."

If you and I cannot admit to our mistakes, and constantly engage in self-justification to preserve our sense of how clever we are, then we can never learn anything.

We will simple repeat our mistakes in a new way.

While most franchise systems don't have a proven business method, franchisors typically berate the money losing franchisee as "not following the business model". They are made to feel stupid. Some then act stupid.

Others, instead of owning up to the mistake of the initial investment, mindlessly but energetically throw themselves into "following the business model".

The better approach is to question the facts upon which the business model rested. Perhaps you have found a counter-example to the business model. Together, you can change and improve the business model.