Matt Haller Wants to Change How You Think About Franchises
WASHINGTON – When you think about it, they’re everywhere; part of the bedrock of every community in America.
They are your local McDonald’s, of course. And the KFC.
But they’re also the Ace Hardware Store and the Sport Clips haircutter.
The Crossfit, the H&R Block, and your family care/urgent care provider.
We’re talking, of course, about franchises, and Matthew Haller, president and CEO of the International Franchise Association, wants to change how you think about them.
Long an advocate for small businesses and the opportunities franchising creates in communities, Haller has been devoting ever more time recently to trying to build a more diverse, equitable and inclusive environment in the ever-growing business sector.
Along with that, no surprise, he’s also been talking a lot these days about the challenges franchisees have experienced during the coronavirus pandemic.
And he’s been engaging in advocacy with the Biden administration on its COVID-19 Action Plan, explaining what vaccination requirements mean for employers, as well as the new COVID-19 EIDL for small businesses.
The Well News recently caught up with Haller, just as the IFA was rolling out a new study from Oxford Economics on the economic impact of local franchise businesses across the country.
Among its findings where that franchises:
- Drive 1.8 times higher sales than comparable non-franchise establishments;
- Provide 2.3 times as many jobs than their non-franchise counterparts; and
- Pass their success on to employees in the form of higher wages, benefits and greater opportunity for advancement.
TWN: Most of us have a pretty good idea of what a franchise business is, I mean, no matter where one has lived, they are sure to have patronized one. But how do you see them?
MH: Well, first and foremost, they are local businesses, but sometimes I suspect they’re not as instinctively understood as you might think. That’s why I feel like we spend a lot of our time trying to reinforce what you already understand — franchises are local businesses.
At the same time, they’re also incredibly more diverse than the average person thinks. For instance, the quick service restaurant represents only about 25% of the overall franchising economy.
The other 75% are concepts in traditional retail or fitness, business-to-business services or residential services, and then there’s heath care and salons and tax preparation. In all, we have about 300 categories of businesses that use franchising as a growth strategy.
In that respect, at its core, it’s hard to describe franchising as an “industry” although we certainly do for the purpose of being relevant to policy stakeholders.
TWN: So franchising is …
MH: A choice. It’s a choice that a brand makes to grow and to connect an established or upstart concept with people who had skin in the game. What we say is, “You go into business for yourself, but not by yourself when you go into franchising.” You’ve got not only the brand — the entity that creates the playbook for growth — but you also have hundreds — thousands in some cases — of other business owners who are literally running the exact same business that you’re trying to run in your community.
That built-in network of support, from the brand and other franchise owners, is something that is very unique to our business model.
TWN: Let’s talk about that business model for a moment. Are most of these businesses really traditional mom and pops that have just been lucky enough to outgrow one location.
MH: Well, there are truly local brands. I think franchising works best when you perfect the unit economics of the concept with a single business or the business and [satellite] businesses in nearby communities, and then you grow from there.
You start locally, then you build out regionally, then nationwide, and in some cases, eventually, you establish an international footprint.
It’s a very dynamic business model, and that’s why I think you see the number of brands that you do getting into franchising.
The other thing you see, is established businesses — some even corporately owned — that convert their business model to a franchise structure for the sake of continued growth, but we see that less frequently.
TWN: What is your role, as an association, in all this?
MH: We’ve been around for 61 years and people come to IFA for three things, essentially.
They come to us for education. They want to know how to become a franchise owner or how to start a franchise brand and grow it and scale it.
They also come to us for networking and for relationship building through our events.
And increasingly, they come to us for government relations and advocacy work to make sure that the franchising regulatory environment is healthy.
TWN: In recent weeks Capitol Hill has been embroiled in the fate of the bipartisan infrastructure bill and the budget reconciliation bill, neither of which has passed yet. I imagine both of those bills are extremely important to your members?
MH: There has been a lot going on. And there is a lot we could be doing, although I think any organization that doesn’t have a clear focus on its core mission is going to get distracted. That’s why we try to focus exclusively on issues that deal directly with franchising.
There are obviously a lot of indirect issues that will impact a member based upon the sector of the economy they are in — restaurants or health care or traditional retail or chemicals — so we’re not trying to be all things to all people in the franchising world. There are a lot of great trade associations out there doing the work in different verticals where we play a supportive role.
But, you know, yes, when it comes to the world of small business and what’s happening in regard to the reconciliation bill, there are a lot of what ifs. I mean, it seems like right now it’s getting ripped to shreds. But I think somehow coming to an agreement on what building back better means is important. If you can do it in such a way that it actually becomes law, I think that would be a tremendous accomplishment. And I thought that was what we were trying to do in Washington, rather than just yell at each other from the fringes. Sadly, that kind of discourse has been typical of this town for far too long.
TWN: Okay, so let’s jump away from that topic. We’ve been reading a lot lately of fears that supply chain issues could dramatically impact the holiday shopping season. What are your members seeing?
MH: Most franchising is not traditional retail in the sense of being part of the Christmas shopping season the way that Amazon or Walmart or Best Buy are; that said, they are impacted by supply chain issues because many of our members have an element of manufacturing in their delivery of a product or a service.
At the same time, consumer experience is also something that’s very impacted by supply chain issues. Think, for instance, about restaurants and the delivery of food and the technology that makes the modern day restaurant something that resonates with millennials.
Think about the hotel industry and how digital that environment has become and the delays we are seeing with semiconductors. So things like that do have an impact on the more than 50% of our members who have consumer-facing aspects of their business.
So, the answer to your question is, I would say supply chain issue is less a holiday season concern and more an ongoing headache for them.
TWN: Franchising, from an admittedly outside perspective, seems to be and to historically have been, a good thing for new arrivals in our country, for women, for minorities that want to get a leg up in the business community. Now we hear, you’re trying to make franchising an even more diverse and inclusive environment. What’s happening in this regard?
MH: Well, the short answer is it’s becoming even more diverse. Although I would say part of what I’m trying to do at IFA, and what our leadership has been trying to do is ensure that our organization looks like the industry we’re representing. And that starts with our board of directors. It starts with the people who are coming to and speaking at our conferences. And it starts with the different messaging we’re putting out.
As I said earlier, a big part of what we do is try to educate and remind people that franchises are local businesses in your communities. And we’re being very intentional about that in a way that perhaps we hadn’t necessarily been before.
Now, I spoke about the diversity of business in franchising. But that also extends to demographics. For instance, 26% of franchises are owned by people of color, compared with 17% of independent small businesses. The percentages are similar when it comes to gender — more franchises are owned by women than similarly-situated non-franchise businesses.
And you know, it’s not just about ownership, it’s about how people from these traditionally underserved communities are able to monetize their investments and create generational wealth.
According to the report we just released with Oxford Economics, Black-owned franchises earn 2.2 times more than Black-owned independent businesses, on average. So the franchise model is clearly a tool that can encourage higher rates of entrepreneurship among some of these traditionally underrepresented groups. And it’s happening without a cost to the taxpayer, because of the quality of the business model and the power of franchising
TWN: I was, for a long time, a business reporter, and one thing I’ve witnessed, first hand, is how one franchise comes in and another follows and pretty soon, a critical mass is reached and you start getting bigger businesses and so on … could you speak to the concept of franchises being engines for economic development?
MH: I mean, you can see it, firsthand, right here in DC. In Columbia Heights. Tyoka Jackson, the former defensive lineman in the NFL, started the Jackson Investment Company and opened the first IHOP franchise in Washington D.C. It was the first sit-down franchise in the history of the city’s 8th Ward. And he has since opened a second location in Columbia Heights.
Now, he was obviously better capitalized than many franchisees, but the transformation that has occurred in that neighborhood because what he did illustrates how franchising can become kind of an anchor tenant for a city that is identifying an area for revitalization or redevelopment.
There’s something to be said for a national or regional brand coming in and saying, “Yes, I understand that this area of the city is not perfect right now, but I’m investing for the long term.”
TWN: Biden administration. Vaccine requirements. You’ve been a big part of the national conversation, What’s your perspective on this?
MH: I think we see ourselves as partners in this effort to beat COVID once and for all. And what we’ve been saying to the administration is, “Let us help you get this right,” so that it’s implemented successfully.
From our perspective, the number one thing that we want to make certain is that franchise owners are looked at on an individual entity basis, not, you know, sort of as one collective entity who happened to be doing business under one brand.
And that affects a lot of things, like, “What is the definition of an employee?” and “What is the definition of a location?” It seems simple but it’s actually quite complex, so we want to make sure that we maximize defense against COVID, while knowing exactly what our rights and responsibilities are. Because if you don’t establish rules that work that’s a problem. And then there’s the matter of the costs of the solution being implemented. And if you’re not part of those conversations, it’s just going to create confusion and more challenges.
TWN: So, what is the easiest way to eliminate confusion. To have an across the board vaccine mandate, from a business perspective, I mean?
MH: Well, that would be more straightforward. To have language that says there’s a vaccine mandate — or, in the alternative, you can employ a weekly testing regime to prove you don’t have COVID. Well, that raises questions — who pays for the test? Who collects the data from the test? When you have questions, you seek clarity. But in some ways, yes, it would be a lot more straightforward to have a blanket mandate.
TWN: Let’s talk about uncertainty. Specifically as it pertains to Washington. For a week, two weeks, we saw the situation with the budget reconciliation package and the bipartisan infrastructure bill change seemingly minute by minute. Then the president went to Capitol Hill and basically said, “We need more time.” And sent everybody home for the weekend. I imagine the situation was and continues to be fraught with uncertainty for your members.
MH: We had a board meeting a few weeks ago and had about 100 people here, and we brought speakers from all sides of the political spectrum. We had the Problem Solvers co-chairs speak, and we had Sen. Joe Manchin in, and our members were like, “Oh my God. I want more of that … I want more people here who are actually trying to govern from the middle and get things done.”
What they read and what they see on television is, mostly, “DC is in chaos and no one here can agree on anything.” And I think that’s because a lot of the loudest voices in the room are getting the most attention.
And I think this is why people are frustrated with Washington and approval ratings continue to plummet. It’s because what people see is just dysfunction. And it’s frustrating. We had an election that left us with a closely divided Congress and an administration that said it wanted to govern and try to get things down from the middle …. and it seems like at the moment the tail is kind of wagging the dog.
That’s sort of the opposite of franchising, where you work within your system. You hear from all sides, but you bring things to bear that are going to work and you get things done.
I mean, among franchisees, I’m sure every brand has a certain percentage of people who are on the fringes — and you listen to everybody, that’s absolutely essential — but at the end of the day, the corporate and franchisee leadership are going to make the decision that works for the system as a while and move forward.
I know that’s not a perfect analogy, but you know, business people are frustrated and they operate best with certainty and right now, you know, Washington is not making it easier to feel a sense of certainty. The worry of course is that the policy environment is being driven by the extremes, and that’s not what the country is looking for.
Dan can be reached at [email protected] and at https://twitter.com/DanMcCue.
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