Catch the Rabbit!

Why Corporate Refugees make Good Franchisees

A Recipe for Rabbit Stew

My mother used to have a recipe for rabbit stew. The first line in the recipe was “Catch the Rabbit”. Just a simple reminder that if you are unable to catch a rabbit there is no soup. I use this as a reference point when I first meet with a client considering franchising as an expansion strategy. One of the first steps in deciding if it is viable to franchise a business is to ask the question “Who is the Rabbit?”. Who is the person that might be interested in investing in this franchise taking into consideration several factors including; affordability, market demand, competition, available locations, the potential return on investment etc.?

The next step is to understand how to reach these prospects. There is an old sales adage that says, “To sell John Smith what John Smith buys you must see John Smith through John Smith’s eyes.” When selecting the most effective market and advertising strategy to generate interest in a brand and reach qualified prospects you must clearly understand a prospect’s prime motivation for investing in a franchise.

A few years ago, I was asked to be the keynote speaker for an ‘IFA Women in Franchising Event’. In preparation for the event, we reviewed the applications generated by a couple of my franchisor clients who had been featured on the CBC TV show ‘Dragon’s Den’, (The US version of the show is – ‘Shark Tank’).

It is important to note that the franchises we represented were ‘marketing driven’ businesses that provide their services at the client’s residence or place of business and not ‘location driven’ e.g., ‘bricks and mortar’ businesses, such as restaurants and retail stores. Examples of mobile/service businesses include services such as junk removal, mobile tire service, cleaning services, pest control, home inspection, plumbing services and pressure washing. These types of businesses are primarily, but not exclusively, targeted at men.

We were surprised to learn that the characteristics of these individuals were remarkably similar. Perhaps we should have identified these trends at the time, but we were literally processing and qualifying hundreds of enquiries and applications over just a period of just a few weeks, so we were pre-occupied during that period. The following are the characteristics for those applicants that were awarded franchise:

90% of the successful applicants were between 40 to 45 years of age
72% were married
50% had university degrees
65% were employed at the time they applied for a franchise
Most applicants were married with they two children
Most of the applicants had been looking for a franchise for at least 2 years, which is typical across all age groups
All the applicants had access to the required capital1 and did not have to make a loan application to a financial institution

NOTE:

The total initial investment for mobile/service franchises typically ranges from $50,000 to $100,000 including the initial franchise fee, opening promotion, legal & accounting, equipment, opening supplies, initial training program and working capital.

Probably the most intriguing information was that the overwhelming number of applicants were between 40 and 45 years of age. I discussed this information with a good friend and colleague Grant Bullington who is a franchise specialist with FranNet BC. FranNet provides education and support to individuals who are interested in exploring self employment as a career option through franchised business ownership. Grant confirmed that, in 2019, the average age of FranNet’s prospective franchisee client is 47.8 years old (System-wide US and Canada). FranNet has seen an increase in the 20 to 29 and 30 to 39 age groups in recent years; however, the average has always hovered between around 48 and 49 years for FranNet clients.

Corporate Refugees

It is important to understand ‘why’ individuals that share these characteristics are so motivated and qualified to invest in a franchised business as franchisee lead generation is expensive and has to be targeted at individuals who meet the franchisor’s selection criteria.

Based on over 35 years experience in franchising, I have found that most people in their twenties and thirties do not usually have access to the required capital, or can’t afford to take the risk of going into business They typically have a young family and need a steady income to pay their mortgage and other living expenses. On the other end of the scale, when people are 50 years or older, security can become a demotivator. They don’t what to give up what they have in order to get what they want as they don’t feel they have sufficient time to recover if the business fails.

People in their 40s are often willing to invest in a business provided that the initial investment is reasonable (as is required for mobile/service businesses), the risk is acceptable, and they believe they will be able to recover financially if the business fails. The successful applicants in this age group are typically what we refer to as ‘Corporate Refugees’. A Corporate Refugee is someone who has, or is concerned about, being downsized, displaced or severed from a long-time corporate career. This has become a common concern because, as I have explained below, the idea of ‘One Job for Life’ no longer exists.

Consequently, the ability to control their own destiny is a prime motivator for people in this age group. The ability to control their own schedule may also be a strong motivator. As in all business ventures, money is important (e.g. compensation and return on investment), but it may not be at the top of their list.

Typically, Corporate Refugees are highly educated professionals and often have valuable sales, marketing and administrative experience. Another important reason why they are such well qualified prospects is they are often capable of financing the business from their personal resources such as lines of credit, savings, or some may have received a Golden Parachute. A Golden Parachute is a severance package that is sometimes paid by a company to an employee when employment is terminated. If a prospect has received a Golden Parachute the decision to invest in a business may be easier for them to make as they have ‘earmarked’ those funds to invest in a business and have not mentally taken them into their possession.

The 'One Job for Life' has Disappeared

The concept of a ‘One Job for Life’ no longer exists and is a Key Driver in the exodus of people from corporate employment to owning their own business as they approach their 50s.

I happened to read an article in an issue of Rick Bisio’s very informative “Educated Franchisee Newsletter” and it really helped me to understand why people in their 40s were so motivated to control their own destinies. Rick had heard Tom Shay, CEO/Owner of Right Management, speak on the topic of job transition and career management at a convention, and Mr. Shay explained that during his father's generation (presumably 40 years ago), the average tenure for a manager or higher, was 27 years. Losing a job was considered taboo! You really had to do something wrong to lose a job. Nowadays the average tenure for that same employee is 3.5 years. Doing a good job does not mean you will keep your job. Job transition is commonplace, and it is expected. What used to be 'one job for life' has disappeared.

The expectation that employees decide when they want to retire is no longer realistic for a significant number of older workers who are forced out of their jobs before they are ready to retire, only to find that they can’t land comparable new jobs, or, in many cases, any jobs at all.

A data analysis by ProPublica and the Urban Institute shows more than half of older U.S. workers are pushed out of long-time jobs before they choose to retire, suffering financial damage that is often irreversible. Through 2016, their analysis found that between the time older workers entered the study and when they leave paid employment, 56% are laid off at least once or leave jobs under such financially damaging circumstances that it’s likely they were pushed out rather than choosing to go voluntarily. Their analysis showed that only one in 10 of these workers ever again earns as much as they did before their employment setbacks.

Also, working for an employer after an employee reaches 50 years of age is considerably riskier and more turbulent than previously thought. Even older workers who have held jobs with the same employer for decades may be laid off without warning. Once their employment is terminated, older workers only rarely regain the income and stability they once enjoyed. Layoffs are the most common way workers over 50 get pushed out of their jobs, and more than a third of those who sustain one major involuntary departure go on to experience additional ones, in the last decade of their work life.

The realization that they have little or no job security once they reach 50 years creates a real concern for those people in corporate employment and they become highly motivated to control their own destiny.

The Longer You’ve Been Around the Better the Odds

A study in the US by the Kellogg School of Management at Northwestern University provides some interesting information about which age group was starting businesses and which age group was more likely to succeed. Out of 2.7 million people who started a company with at least one employee between 2007 and 2014 the average founder was 41.9 years of age. This included all kinds of businesses from tech companies to nail salons to restaurants. For an alternative measure of success, the researchers also looked at firms that had successfully “exited” the market, either by getting acquired by another company or going public in an IPO. The average founder for that group was even older, at 46.7 years of age. Among this exclusive subset, the average founder age was 45.0 years.

A 40 year old is 1.3x as likely as a 25 year old to found a start-up that is in the top 0.1 percent - in other words, the one company out of every 1,000 that saw its sales or number of employees increase the most in its first five years. For an alternative measure of success, the researchers also looked at firms that had successfully “exited” the market, either by getting acquired by another company or going public in an IPO. The average founder for that group was even older, at 46.7.

While these results clearly indicate that middle-aged founders dominate among the highest-growth firms, it is also true that forty-somethings are much more likely to try to start a new company than twenty-somethings.

To further test their results, the researchers made another calculation looking at the probability of success among those who had founded a firm. They determined what they call “batting averages”— the odds that founders of different ages make it into the top 0.1 percentile. The data revealed that a founder who is 50 years old is 1.8 times more likely to start a top company than a 30-year-old founder, and that a 20-year-old founder has the worst chance of all. There are some suggestions that business success rates for people over 50 years of age are as high as 70%.

Norman P. Friend

President

Franchise 101 Incorporated