We were interested to run into Christian Faulconer, CEO of Franchise Foundry (www.franchisefoundry.com), based in Springville, Utah recently. Christian--a veteran of the high tech startups space--is applying investment dollars, information technology, and social media to the franchise market. Christian is former co-founder of Public Engines/CrimeReports.com, and also founded Sharp Analytics (now part of iCrossing).
First off, what's Franchise Foundry?
Christian Faulconer: Franchise Foundry makes investments in what are proven and profitable businesses, looking to grow quickly through franchising. We make an investment in money, but also in time. Essentially, we take over lots of the franchise development efforts that our franchise clients need to have taken over. We focus on four main areas--technology, marketing, sales, and legal, which are areas often lacking in young franchise companies.
Any particular kind of franchises?
Christian Faulconer: I would say there's not any particular industry, just businesses that are proven and profitable. Proven means that the company has demonstrated the ability to provide their products to the marketplace, and it is interesting to the marketplace. One thing we are looking for is a company which has reinvented itself a few times. They've been through a startup cycle, and figured out what is repeatable. The interesting thing about franchising, is people often think franchising is only something you do with restaurants. We actually only have one restaurant in our portfolio, which includes a divorce mediation company, a home repair business focused on green solutions for homes, and are working with a painting franchise. There's really a wide range of things that can be franchised, and the key is repeatability. They need to know who their customers are, have processes in place that can be franchised, so that an entrepreneur can pick up a franchise and run with it.
You told us earlier you also make investments in companies as part of this--what size of investments do you make?
Christian Faulconer: Our typical investment is anywhere from $250,000 to $350,000, and we make that investment directly into the franchising part of the company. All of that investment is used to build out the franchise system, with every dollar utilized in franchise development.
How is it a technology person like yourself ended up here in the franchise area?
Christian Faulconer: That's a great question. I ask myself the same thing. My last couple of businesses were very much technology businesses, but one thing drew me to franchising. If you look at the franchise space, there is not a lot of technology that is currently in play. We felt we could bring things I and my partners have learned in our technology businesses, and apply it to the space, kicking it up a notch. A good example of this was, earlier this year, we went to an international franchise association conference, and participated in a session about using social media to advance their franchise development efforts. Most of the people there had never even heard of Twitter. Some of the people on the panel had just created a Facebook or Twitter account that day. We seemed to be the old guys when we were in technology, but now we seem to be the young upstarts in the franchising world.
How is it that you apply technology to the franchise business?
Christian Faulconer: We use technology in a couple of ways that are critical to franchises. One, is there are really important technology systems for companies, which they wouldn't able to afford otherwise. If you think about franchising, most franchisors are living off a royalty stream which is about 5 to 10 percent of gross sales. For a quick example, if you have a system generating $10M in sales, you need the infrastructure to support a $10M operation, but you're trying to do that on as little as $500,000, or maybe just $1M in royalty revenues. For a young franchise system, which is not generating anything near to $10M, you've got even less to work with. The great thing about Franchise Foundry is we've got a world-class system to support franchises, who wouldn't have them otherwise. There are things like community portals for the franchisees, content management for their web site, and we can also create online stores to deliver coupons and materials, and all sorts of marketing collateral for franchisees. That's infrastructure they typically don't have access to. In addition to a pretty sophisticated technology side, in the sales and franchise development effort we are very much an online marketing company. We are doing search engine optimization, search engine marketing, and collecting leads. We're tracking those using technology like Salesforce.com, and use very sophisticated metrics to watch those sales and marketing efforts, so we have a close rate three times the industry average.
How much are people in the franchise business connected online, and have they even heard of social media?
Christian Faulconer: Franchisors have heard of social media, and there is a push to get into that space. There are guys like Sean Kelly and Joe Libava who are at the forefront of using social media in franchising. They are doing exceptional jobs, which we respect and admire. We see this continuing to grow, pushing what has been accepted as the traditional way for marketing. We are on Facebook, Twitter, and taking advantage of social media to drive interest and brand awareness of our franchises.
Finally, how has the weak retail environment affected your company, and how are you handling that?
Christian Faulconer: The thing that has probably affected us most is the tight credit market. We've been trying to work with government agencies to see what we can do to ease the credit markets and loosen things up. We've definiately been affected by that. We've met great candidates for franchises, which we think would be successful and otherwise meet all of our criteria--and even though they would have been able to get funding a year ago, they are not able to now. In spite of that, it's been an exceptional year, we sold twenty one franchises across our system in the last six month. Compared across the industry, that's been a pretty good number for us to be selling, and we don't see that slowing down. We have a very strong sales pipeline. But, there's no question that if our potential franchisees had better access to capital, that would improve things for us.