Starting a Franchise in an Emerging Industry

Franchising in an up-and-coming industry is a bold move. Therefore you should plan on dealing with a certain level of risk before you reap the rewards.

If an industry is new or emerging, it may take longer to reach profitability than starting a franchise in an established industry. Fewer consumers are familiar with the industry, much less the businesses operating in it. Therefore, unlike franchising in an existing industry, you’ll have to spend more money to educate the public on both the emerging industry and your franchise. Research and development will also be a higher priority. Because you’ll likely have larger expenditures, you must absolutely be sure your concept is well capitalized. Because budding industries typically face more regulatory challenges, as well as unfamiliarity among consumers, accruing enough capital could be more difficult and take longer.

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However, being a brand that perseveres through an industry’s growth years and helps make it mainstream can be very rewarding. Your brand could become synonymous with the industry and franchising may become easier and pay off down the road. Consider the automobile industry, which was emerging in the early 1900s, included 253 automobile manufacturers in 1908. But, by 1929, there were only 44. Today, there are only three American car-makers – Chrysler, Ford and General Motors – controlling market share.

But before you see that payoff, you must still follow the basic tenets of franchising. There’s no cutting corners. To franchise in an emerging industry, make sure you first build your foundation properly. That includes:

Establish Proof of Concept

Although the industry is new and the brands in it are likely not widely recognized, you have to make sure your concept will be successful when the market expands and becomes more familiar to consumers. Before you begin franchising, you need to ensure your concept is successful in multiple corporate locations and in several markets. After you experience demand and growth in one market, look at repeating that growth in other markets. Your concept should prove successful among more than one kind of consumer in different areas. With an emerging industry, you will want to pay particularly close attention to demographics – as the industry expands, to whom does it appeal, in terms of customers and franchisee?

Spend for the Long Run

Overcapitalize because you will spend more money launching your brand in an emerging industry than you would in an established industry. Besides R&D and marketing, you will need to spend more in the area of barriers to entry to compete. In a new field, you will need to rely on a higher level of expertise to bring your product or service to market while competing with similar concepts also trying to gain a foothold.

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Marketing is not an area where you want to skimp. Remember, you’re not just educating consumers on your brand, you’re bringing the emerging industry to light. In order for your concept to make sense to the public, they need to know about the industry. And, with many potential hurdles ahead, your marketing plan should include public relations.

New industries face a lot of scrutiny from both the public and federal regulators. A good PR team will not only help spread the word about your company making a difference in a new industry, but it will also help you mitigate any legal trouble or bad press your brand or industry may run into. You will want PR professionals to put your brand and/or industry back into the good graces of customers so both the franchise company and industry grow.

Franchisees should also be well-capitalized and expect to contribute considerably to marketing and ad funds as your brand strives to make a name for itself in a relatively unknown industry.

Stake Your Claim

The industry may be new, but you can bet there are entrepreneurs who have already developed or are developing concepts to capitalize on it. What is your differentiator? How do you plan to compete with them?

Even in an emerging industry, you will need to conduct a competitive analysis. A competitive analysis will help you learn how your concept measures up against the competition and help you determine whether franchising is sensible. It can also help you identify differentiators or adjust the ones you already have.

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The analysis will identify the competition’s strengths and weaknesses, which will allow you to develop strategies to gain distinct advantages. Knowing this will aid you in customizing your sales efforts to attract prospective franchisees who might be interested in opportunities with competing franchise concepts. When you do start franchising, the findings from the competitive analysis will provide your franchise development staff with information to help them answer questions about competitors from franchisee prospects.

Be Flexible

Industries change as they emerge. As a franchisor in an emerging industry, you will have to be flexible in order to adapt to the shifting industry. For example, your industry might be heavily regulated at first, and your company will need practices and procedures in place to comply. But, as the industry becomes more mainstream, regulations might lessen and allow you to operate your business and grow more efficiently. Since emerging industries can change dramatically, there are likely unknown variables that arise which you will have to navigate.

For help preparing your concept to compete in an emerging industry, turn to Winmark Franchise Partners. With 30 years of franchising experience and more than 800 franchise owners representing almost 1,250 locations for five brands, Winmark Franchise Partners can help you help grow your brand through sound strategy and expert franchising advice. Contact us here or at (844) 234-8520.

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