What Makes for a Viral Franchise?

The most exciting concepts always seem to have a few things in common:

Operating in a proven category, but with a spin on their go-to-market strategy.

Examples:

• Burgers but make it fast (McDonald's)
• Gas station rest stops but make them clean & enjoyable (Buc-ee's)
• Fitness classes but use tech & data to enhance the experience (OrangeTheory)

The franchises that do well go deep on their differentiator, and build the brand around that.

The McDonald’s Speedee System was revolutionary in 1948. While it’s been replicated over and over in numerous food categories, at the time they began franchising it was an innovative GTM.

If you think about other concepts in the top right quadrant, they all have some form of an innovative GTM in categories that have been in existence for decades.

New Age Examples

Dunkin’, Starbucks, and others proved out the mass-market TAM of coffee, but Dutch Bros has differentiated with a drive-thru model (that has now been replicated by 7-Brew and others)

Bagel shops are nothing new, but PopUp Bagels is using a rotating menu of schmears and a structured menu in terms of options & order quantities to differentiate their GTM. Combined with viral social media marketing, the brand is absolutely exploding.

Insomnia Cookies, Great American, and Mrs. Fields have hundreds of stores each, yet Crumbl came in decades after with a rotating menu combined with viral social media marketing to quickly become a category leader.

‍Note: being in the upper right quadrant doesn’t guarantee long term success, but it does seem to result in viral growth and initially quick ROI’s.

Dave’s Hot Chicken has combined viral marketing with a twist on fried chicken to achieve 2 year return on investments for franchisees. Early Crumbl franchisees also had ridiculous payback periods (though it's not the case today).

Most New Franchises...

Of course, not every big franchise / brick & mortar chain has an innovative approach.

Many have "won" by copying existing models and simply executing. In fact, we’d argue most brands start there. Whether it’s home services franchises, restaurants, etc.

That isn’t necessarily a bad thing, because in the world of small business, execution can absolutely be a differentiator (it’s just harder to evaluate early on). 

Zaxby’s wasn’t the first fried chicken franchise by any means, and began decades after KFC, Chick-Fil-A, Popeye’s, etc. But fried chicken, like other categories, is more than big enough for multiple players, and Zaxby’s has been able to carve out a franchise to the tune of 940+ locations (2/3 of which are in just 6 states).

But today, the “greenfield” opportunities are largely taken. Many industries and sectors are crowded and/or saturated. 

A new HVAC franchise may come out with a modern brand slapped over it, but it is likely still competing the same way as the dozens of mom & pops operating in their markets. 

What does that mean?

In simple (and seemingly obvious) terms, franchisees will have a tough go starting new businesses in markets with tons of existing competitors and downward pricing pressure.

This equally means the franchisors will struggle, despite potentially still being able to “sell” the franchise well. 

Putting it bluntly, we expect a lot of pain coming in the next few years to brands that market themselves as doing something innovative, but in reality are bringing 1st time business owners - who have been sold on a blue ocean opportunity - into a knife fight. 

The Unproven Categories

Lastly, the left 2 quadrants are the highest risk as it represents brands launching in unproven categories. 

The explosion of pickleball franchises, and Sauna/wellness franchises are what we’d define as unproven categories (pickleball more so than health/wellness). It remains to be seen how units and concepts fare in 5, 10, or 20 years.

But their GTM groundwork has at least been laid by the boutique fitness industry, as both pickleball and health/wellness use membership models that customers are familiar with.

The top left quadrant is rare to find in the franchise world, and is more relevant in venture/startups (AirBnB would fit that quadrant).

Anytime a concept is launching in an unproven category, it’s worth asking, “why hasn’t this been proven yet?”.

Usually, there’s a reason - it’s likely not a replicable business fit for a national franchise, and/or is already saturated with independent and regional players.

New Category Examples

But there are certainly times when new sectors or whole new categories can fit the franchise model.

Mediterranean fast-casual, popularized by Cava, is a sector that has become mainstream, is growing, and one we are watching closely.

Meanwhile, GameDay Men’s Health is attempting to pioneer a national testosterone clinic model. We say “attempting” because the script is not yet written - they sold out the entire country within a year or so of launching their franchise, and it is to be determined if their model can sustain itself nationally for the years to come.

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If you are launching a franchise brand, being in the top right is the best place to be. If you are in the bottom right, be sure to consider how much competition franchisees will face by opening up in their market, and if your playbook is truly innovative enough to dramatically increase their return on investment timelines.