This article is the second of a three-part series related to technology in the franchise world. It discusses current trends in both the software and franchise worlds which are relevant, given the similarities illustrated in Part 1. Part 3 discusses what franchisors should be doing to react to this change in business context.

Fact: The world is changing. Technology is the catalyst.

The impact of technology on the way we do business is undeniable, and franchising is no exception. More often than not, franchise success stories list technology as one of the key elements to the franchise's growth. Five to ten years ago, most franchise systems recognized the value of a franchise intranet/extranet as a centralized franchise collaboration tool. More recently, the rise in franchise systems which allow absentee/semi-absentee franchisees has increased the need for software tooling that facilitates remote franchise management. 

Start thinking about who will be buying franchises in the next decade or two. These people have grown up with the Internet and do not know life without it. A very insightful read on this subject is Diana G. Oblinger's recent publication Growing up with Google: What it means to education as many of the concepts can be projected from current day challenges in education to tomorrow's franchise sales situation. The Net Generation (born after 1982) is now entering the workforce with university degrees. It won't take long for them to look at purchasing a franchise. Thanks to the Internet, the Net Generation has access to vast amounts of information which doesn't always work in the franchisor's favor. A single individual can report scams which rapidly make their way through the Internet. There are even blogs dedicated to reporting fraudulent business opportunities. This generation has learned to question authority and to go the Internet to prove their claims.

The widespread availability of high-speed Internet has not only impacted franchise operations: it has deeply changed our society. The latest trends in software have been user-empowerment (blogs), online collaboration (wikis), and social networking (for business or for fun). In case you didn't know, over a quarter of all Canadians have a Facebook account. If you're thinking that this is a fad for kids and teens, think again as over half of these users are over 30. Reacting today to these social and technological changes does not only help prepare yourself for the future, it also helps you understand your current operating environment because the facts of life for the Net Generation are also true for many older individuals which are no longer marginal.

A few trends in the software world...

Starting a software company on a shoestring has never been easier for a number of reasons. First, high quality open source tools, powerful software frameworks, and the availability of free web services allows competent software engineers to solve problems faster than ever. Second, infrastructure costs are negligible. Everyone already has a computer and an Internet connection... and working from home is an option for MicroISVs. Once you outgrow your basement or garage, co-working environments provide an affordable way to grow your company to the next level.  Even if you operate from home, you can still reach a very wide potential client-base thanks to the Internet and the same logic applies to any kind of business, not only software.

Another trend in the software world is that many cities (examples: Ottawa, Montreal) offer a vibrant software startup community which most people aren't even aware of. Founders are connecting and publicly sharing lessons learned. Funders are even connecting with founders at informal social events focused on growing the community. Twenty years ago, it would have been hard not only to meet startup founders but also to sit them down to hear about their experiences. Today, you can read about it on blogs and join up at local events... and if you're feeling old school, you can still buy books to learn the stories of other founders. As we all know, the Internet makes it easy to contact other people and collaborate online but it does also make it easier for people to meet offline for both business and social events. 

Finding and retaining good people is the single hardest task in a software company, even if you've got money to burn. Money is an incentive, but is far from being the most significant one for software engineers. Indeed, just take a look at Maslow's hierarchy of needs to discover esteem and self-actualization are higher in the pyramid yet cannot be purchased with money. What developers are looking for are interesting challenges in a great work environment and most large organizations are unable to take advantage of this fact, which push the best software engineers to work at smaller startups or even start their own company. The best talent have plenty of opportunities to pursue and consequently don't often look for jobs on sites such as Monster whereas bad employees always end up unemployed and pollute the system. The solution in the software world is to be active in the software community and utilize niche-specific job sites such as the Joel On Software job board.

... That are also present in the franchise world

In the franchise world where we are seeing lots of concepts, such as home-based franchises, growing rapidly because of their low start-up costs. Many people dream of being their own boss while doing something they love and it now easier than ever for them to start their own business. Striking gold is (and always will be) hard, but one can make a decent living with a MicroISV (thanks to niche markets on the Internet) or home-based franchises (thanks to franchisors who know what it takes to make the concept work). We're also seeing an increasing number of new franchise concepts, partially because the Internet has made it easier to contact experts in franchising (and vice-versa... which is not always a good thing).

I would love to say there is a vibrant startup franchise community on the Internet, but that is simply not the case. There are a few disparate local associations but the web is polluted with franchise opportunity websites, given the high commissions related to franchise sales. However, if you look hard enough, you can find a few good websites which unite franchisees and franchisors under one roof for discussion and collaboration. Furthermore, younger franchisors are turning to blogs and are openly discussion various lessons learned. It would be superficial and discriminatory to claim age is the only factor at play to explain the slower growth of a good online franchise communities, but it is a contributing factor given the fact that franchisors require a substantial amount of capital to launch a franchise. Few, if any, current franchisors are part of the Net Generation.  However, I am optimistic that a number of excellent franchise-related websites such as Blue Mau Mau, focusing on everything other than sales, will help grow the franchise startup community over the next decade thanks to collaboration between franchisors and various franchise service providers.

Finding and retaining good franchisees is an obvious challenge in the franchise industry. Many new franchise prospects are surprised that they are being screened for quality and are unaware that, for new/small franchisors, their individual success can have a strong impact on the success or failure of the whole system. Most franchisors complain about the decreasing quality of leads via franchise websites and this poor quality is surprising given the parallel which can be made with online recruiting systems such as Monster. As more people look for franchise opportunities on the Internet,  it becomes increasingly important for franchisors to be able to efficiently filter through a larger volume of requests but also for them to be proactive about sales and marketing. This can be achieved by participating in online communities dedicated to their niche. Of course, time & effort is a valuable commodity and lower quality leads are to be expected when a franchisor doesn't proactively work on solutions on a daily basis. 

Summary

After discussing changes in our society, this article covered three core trends:

• Younger people are starting businesses on a shoestring budget.
• It is easier than ever to connect with other people and learn from their mistakes.
• The big sites are saturated with people you don't want to hire or have as franchisees. 

Part 3 will talk about what you should be doing to make the best of this changing environment. Your homework for the next week is to participate in a few online communities of your choice (Franchise, Startup, or Local). Also, take a look at Franchise NewsBlast, which we are launching today.

The omnipresence of technology in our lives and the Internet has changed the way we do business. The software industry is not only one of the driving factors for this change, it is also one of the first industries to be influenced and react to changes in society. This contrasts with the franchise industry which is a bit old school... which has its pros & cons. Regardless, being abreast of current trends is helpful for any business and we feel franchisors can benefit from the insights of those with a software engineering background. Since LavaBlast builds software for the franchise industry, we’re at the junction point of two very different worlds ... which are more alike than you would initially expect. 

This article is the first of a three-part series related to technology in the franchise world. It focuses on similarities between franchises and software startups and serves as a premise to Part 2, which covers current trends in both industries. A comparable evolution in a changing context was to be expected, given the similarity between software startups and franchise systems. Finally, Part 3 discusses what franchisors should be doing to react to this change in business context.

For the sake of argument, let’s focus on small and/or new franchise systems. Why? There are numerous reasons:

1. Innovation often comes from smaller, nimbler organizations.
2. Over half of all franchise systems have less than 50 units. 25% have less than 10 franchise units. 
3. Hundreds of new franchise concepts are born every year. Over 1000 businesses turned to franchising for expansion between 2004 and 2006.

Small franchises are similar to software startups in nature.

There are numerous similarities between software startups and budding franchises: the strong need for domain expertise, the global potential, and they are both created to fill a gap in the market. However, their resemblance can be concisely be explained by looking at growth patterns and scalability.

In general, because of the very nature of software, software startups can achieve very high growth in a short period of time (examples abound!). Venture capitalists rate startups according to their scalability in order to obtain the highest possible return on their investment. This is done by building software which solves problems for a large group of people with little or no custom work required on the software firm's end to support a new user. Hosted software applications are installed once on the startup's web server and shared between customers, thanks to a scalable multi-tenant software architecture.  Additionally, the first hires in a software startup are crucial to building both v1.0 of the product and also the company’s culture. A solid team working together in the same direction is necessary to grow a successful company.

Franchises are similar because the concept must typically be tested and proven to be successful in its first location, akin to a software beta. Small business owners which turn to franchising as a growth strategy quickly discover than growing a franchise is a completely different ball game than making your first location successful. Scalability cannot be tacked on, it must be planned. The franchisor must find a scalable supply chain and must ensure the store look & feel is replicable. Unfortunately for some, purchasing store fixtures at your local flea market, police auction, or more recently eBay is not a replicable way to grow a franchise. The franchisor can't fly out to different cities to shop around for cool lamp shades for each new franchisee... Suppliers must be approved and utilized. The same is true for software where an integrated solution is the key to simplified franchise management. Furthermore, people with different backgrounds and skill sets are required to launch a successful franchise, and the first few franchisees are critical. As much thought (if not more) must be given when picking the first franchisees as the first hires in a software startup.

Additionally, the very nature of franchise systems implies that franchisees are geographically distributed. One might think this is not the case in software startups, but this is not totally true due to outsourcing and open source. Furthermore, even small software startups deal with international customers on a daily basis.  As such, the various stakeholders are not necessarily always in the same room ready to discuss business issues even though both are have to quickly react to preserve customer/franchisee satisfaction and grow the business.

Implications

We've just scratched the surface of why software startups are similar to small franchise systems. You may have other similarities in mind or you may disagree and have opposite feelings; in both cases, you are invited to share your opinion.

If you are a franchisor, why should you care about software startups? Simply put, software startups are more in tune with the impact of technology on our society which affects your franchise's operating environment. This subject will be covered in detail next week, in Part 2. In the meantime, you are invited to read Growing up with Google: What it means to education which explains the characteristics of the Net Generation you should be aware of, regardless of your background.

We attended the second Montreal Founders & Funders dinner this week. Since I've noticed that all blogs assume that their readers know what the Founders & Funders event is (which is not the case), I thought I'd give a brief overview of this simple concept.

• The organizers send invitations to a bunch of people who have manifested interest in the event (via an online form or in their network of contacts).
  • I don't know how the selection process works, but attendance is limited to the size of the restaurant.
• The attendees arrive and network with other founders & funders.
  • No special organization - just put interesting people in a room with other interesting people and magic happens.
• Sit down at a random table and enjoy the meal
  • I ended up at a table with a 50/50 breakdown of founders versus funders.
• When you're done, network some more
  • There was a networking event after the meal where an invitation was not required.

It was a nice experience overall and the non-stressful environment was great (although some founders appeared quite nervous!). The crowd was very diverse and we covered a broad range of subjects, in both French and English. Unilingual individuals must have had a bit of trouble following everyone’s conversation but in general it was a very enriching experience. We ended up being so busy talking to everyone that the event just flew by, which confirms it was far from monotonous. We weren't looking for funding but we saw this event as a good opportunity for a first encounter. Going to such an event also reinforces the fact that it's a small community and I was surprised that lots of people had heard of us before, thanks to the hard work of the folks at StartupOttawa and MontrealTechWatch.

Some of the other founders at the event were:

• Christian Laforte of Feeling Software - great business
• George Favvas of SmartHippo - great concept
• Steve O'Halloran of AssetLabs - great pitch

The one improvement I would make for future events would be prepare and distribute a list of attendees a few days before the event. I personally prefer to do my homework before meeting a bunch of people. Furthermore, I met at most 20% of the people at the event and maybe missed out on some founders/funders with experience in retail environments.

Finally, Austin Hill had an open question: what could we do to get more people starting companies fresh out of university? I’ll possibly talk about my opinions on the matter in a future blog post. For now, let me invite you to review the Founders & Funders site and strongly incite you to see if such an event can be organized in your community.

Last week, I loaded up my blog aggregator and I was pleased to see Joel Spolsky had written a new article on architecture astronauts. He made a good point about how Microsoft is rewriting the same software over and over and no one seems to care. I totally agree with Joel's argument about architecture astronauts as we are wasting precious intellectual resources and solving the same issues over and over.  (Side note: an interesting read about how we're wasting massive amounts of brainpower.)

However, that's not what I'm writing about today. I found myself reading faster and faster as I progressed through the article, reading the last paragraph at a frenetic pace. You can definitely feel Joel's frustration - the big boys in the industry are "stealing" all the great programmers by offering starting salaries leagues above what smaller companies can offer. Why do I think Joel's frustration is paradoxical?

Joel's Premises

• Hire only the top quality people
• Treat your employees as if they were superstars in your beautiful New York offices - spare no expense.
• Build a closely-knit team that works on challenging problems to retain your employees
• Set an example as being the best damn place for a software engineer to work and inspire millions of developers to follow your example.

Joel's Aspirations

• Recruitment problem: solved.
• Develop and commercialize high quality software
• Thanks to a well-defined (and very selective) hiring process, retire from software at age 45 to start your own avocado grove as a hobby.

The Contradiction

• Joel is frustrated about losing prospects to Google and Microsoft.  Yes, THE Joel we turn to for tips on software recruitment.
  • (Note: He still has a couple years left to fine-tune his left-handed avocado picking technique.)

Okay... I'm generalizing just because I find it ironic to see Joel having hiring woes. Even if as a general rule things are going well, that doesn't mean you get anyone you want. Everyone has hiring frustrations, even those who set the example. However, I'm left to wonder... has anything changed in the context of hiring? Is there anything you need to do differently today to grab the best technical talent? I can't answer these questions myself, but I see lots of companies struggle with hiring.

I do agree that it is impossible for smaller companies to compete with some of these starting salaries (unless they are keen on burning VC money) but smaller firms do have (many) advantages. But what are they?

1. Get back in the kitchen and make me some pie

What I like most working for a startup (and it would be the case even if it wasn't mine) is the opportunity to touch a bit of everything (engineering, marketing, sales, legal, etc.). Even if you go work for a 40-person startup, if you're interested in contributing to elements which aren't related to your primary function (software developer), you probably can help out. For example, if you think the company's website doesn't communicate what the company does, you can take a step back, think about it a bit, and propose enhancements. (Complaining doesn't bring you anywhere, but constructive criticism helps everyone out!).

If you're a hardcore coder, you can still benefit from working for a smaller company, because you'll have a greater impact on the final product.

However, this fact is not something that has changed in the hiring context... what has?

2. Not everyone wants to work in New York, Redmond or Mountain View.

This is one key differentiating factor for startups. Not all of the world's most talented individual feel inclined to move to get a job and I feel the number of people who will start their own software business in their home town will increase in the coming decade. In the past, we've seen a few companies such as Eric Sink's SourceGear in Illinois do well even if their offices are in the middle of nowhere, so to speak. This is due partly because of increased high-speed Internet availability combined with the lower cost to start your own software business. I think we'll definitely see more success stories from entrepreneurs living in non-metropolitan areas over the next decade because starting your own business (or working for a local one) is such an attractive alternative. It's funny how making it easy to go global causes the creation of many smaller local hubs.

On a related subject, I don't recall that many local startups trying to recruit us while we were software engineering students at the University of Ottawa... there were a few but we were mostly solicited by IBM and Research In Motion (leading to the infamous "hey! do you want a RIM job?" quote). If you're a competent student today, you should definitely look around at local startups that are working on interesting concepts.

3. You can read about it on the Internet

There are tons of people talking about their software startup experiences on the Internet and it's easier to actively participate in the community today than it was a decade or so ago. I can't really see myself connecting to a BBS with my 14.4kbps modem to learn about software startups. Today, you can find people with similar interests very easily but, best of all, you can learn from their experience.

Rather than enumerate a long list of advantages that you wouldn't bother to read, I'd like to ask you an open ended question.

What do you think will change in the way we hire software engineers in the next decade?

Please feel free to discuss in the comments. Ideas: Outsourcing? Co-working? Telecommuting? Nothing at all?

As stated in one of our recent software start-up posts, we submitted our full-length business plan in this contest : 10th annual Québec Entrepreneurship Contest.  In the east part of Montreal alone, over eighty business plans were submitted.  Two weeks ago, we learned we were amongst the twenty-some finalists for the first round of the contest (there are three rounds: local, regional, national). On Monday, we had a short interview with the jury who decided which of the finalists would win in each category. It was a good way to practice our pitch, not only with the jury but also the other entrepreneurs that were being interviewed. Yesterday, at the awards ceremony for Montreal-East, we won the first prize in the Technological & Technical Innovation category.  Woohoo :). We won a cash prize and a one year membership to the chamber of commerce. 

We wanted to congratulate our good friends at Web Estate Management who also won a prize in the Services category! We had a long chat with the winners of the transformation / manufacturing category, Brik-a-Blok Inc.

Writing a business plan is a complex exercise if you want to do it properly. However, participating in a business plan contest can give you the small push you need to actually write it down and define your vision and your short/long term plan. If you aim to be a well-rounded software engineer doing more than coding, writing your plan brings a bit of variety to your day and allows you to distance yourself from the code for a few hours. We tackle business issues as if they were engineering problems and learned a lot during the whole process. (It is a known fact that it is the exercise of writing the plan that is valuable, not the document itself, which will evolve with the company.)

Even at this stage of the contest, we've already met some really interesting people that showed interest in our solution and had a few business propositions. The visibility that such a contest can offer in the media cannot be underestimated; some newspapers will most probably mention our company along with our sexy faces.

Yesterday was the ceremony for Montreal-East; we are now participating in the regional contest.  We'll know at the end of the month if we are in the finalists!  Wish us luck!  Regardless of the outcome, this was a very gratifying experience.