Franchising arrives at the corner of clicks and bricks

“The Internet is such a vast, almost unpredictable entity. In order to take full advantage of the business opportunities, one needs to attack this huge available marketplace with proven systems. And the one business model that talks about proven systems is a franchising system,” Mr. Mayne says. “We give people the means by which they can go out there and seize this huge, available marketplace.”

The Globe and Mail
March 31, 2000

Franchising arrives at the corner of clicks and bricks
Several companies are bringing the physical-world strategy of building business networks to the virtual world
Kevin Marron

Think of franchising and you may conjure up images of look-alike fast-food restaurants on a highway strip, but the franchises that Cliff Sweeney is selling are located at the intersection of Main Street and the information highway – the corner of clicks and bricks.

Mr. Sweeney is president of Indexonly Technologies Inc., which is planning to create an on-line directory of all businesses in every community across Canada and eventually throughout the United States – a virtual Yellow Pages that lists businesses irrespective of whether or not they have Web pages.

Mr. Sweeney figured out that the best way of selling on-line advertising for these directories and keeping the listings up to date would be to find representatives in every community who would be prepared to walk the streets an knock on doors.

And he reckoned the best reps would be those with a vested interest in the business by buying licences giving them exclusive rights in their communities to sell ads to the business he’s created. In other words, he’s bringing franchising to the Internet.

Franchising – a tried and true method of building far-flung business networks in the physical world – is now seen by many as an equally perfect fit for expanding business in the virtual world. Indexonly is just one of several companies that are marrying franchising with e-business to care a niche in the space where the virtual and the physical worlds meet.

But it remains to be seen whether or not this route represents a path to riches or a dead end for the people who buy these franchises, according to franchising consultant Robert Skinner, president of Vancouver-based Interlink Franchise ConXions, a division of Interlink Network Technologies Inc.

“There are definitely opportunities. But it’s still early days to see whether or not rapidly changing technology will shoot them down as fast as they come up,” he says.

The problem with buying a franchise for an Internet product or service, according to Mr. Skinner, is that the marketplace may shift and take the ground below your feet before you can even begin to recoup your investment, leaving you with little to show for it but some obsolete technology.

Norm Friend, a co-founder of Indexonly, is a consultant who has written two books on franchising. He agrees that the Internet and the franchising model do not always make the perfect match, but he maintains that his company has got the right formula for success.

“The Internet has so many angles to it and I looked at it to see which ones are franchisable. There are not a lot because there are not many that involve physical locations and can be broken up in a physical way,” says Mr. Friend, vice-president of international expansion and marketing for Indexonly.

He maintains that his company’s strategy fits the marketplace because it involves licensing rights to sell Internet services that are directly linked to brick-and-mortar businesses in each franchisee’s geographical area.

Mr. Friend contends that the opportunity his company offers to franchisees is a good fit for many of the “corporate refugees,” people downsized from their jobs or wanting to strike out alone, who are now in the market for new business opportunities.

“They don’t want to be behind a counter in a mall. They don’t want to run a restaurant because they don’t know how,” he says, noting that many of the other good franchise opportunities are too expensive or already sold out, while some franchise schemes don’t make any money and others are simply scams.

Indexonly is run out of executive offices in Burnaby, B.C., though its corporate headquarters are in Las Vegas. It recently completed a reverse takeover of Classic Golf Corp. of Phoenix, and its stocks probably will begin trading on the over-the-counter market in the United States in about 60 days.

The company has so far sold seven regional franchises in Ontario and Central and Western Canada for between $35,000 and $60,000 each, and these regional franchisees have begun recruiting district franchise holders who each pay $8,000. The company’s goal is to sell 100 regional franchises and 3,000 district franchises in Canada and the United States over the next three years.

Majella Morin, president of Edmonton-based Vardis Corp., which operates under the name VisualLinks, also believes that his Internet-based franchising operation will work well in the real world.

VisualLinks is similar in many ways to Indexonly. Its franchisees go door to door in their local communities offering to provide businesses with Web sites. The company also has ambitions of expanding across Canada and into the United States and Europe, though current franchises are mostly located in and around Edmonton.

Unlike, which is geared primarily toward selling advertising to community businesses, VisualLinks aims to sell e-commerce and Web-site design services. Its approach is to demonstrate the value of the Internet by offering businesses free “brochureware” sites on which they can display some basic information, then attempt to interest merchants in more sophisticated solutions.

VisualLinks has been in business since 1996 and decided to adopt a franchising strategy in 1998. Mr. Morin says it works better than hiring a paid sales force because “sales people don’t have a financial commitment to a client. A franchisee has made an investment in the area and is more prone to take a greater interest in serving clients.”

The approach of hitting the bricks to sell clicks works best, according to Mr. Morin. “I know a number of companies that have tried to grow their business virtual shopping malls purely on-line and it’s a tough sell because the typical merchant needs to be coached. I can see more and more businesses move towards a franchising approach.”

Franchisees pay VisualLinks $12,000 and must have at least $35,000 in capital to get a franchise.

“It’s an interesting challenge because it’s so new,” Mr. Morin says. “Most people are looking for something tangible in a franchise. Here, it’s intellectual property. And most people are looking for something that generates immediate cash flow. Here, the cash flow is gradual and it’s all residual at the end of the day. It’s a different selling strategy altogether.”

Nigel Mayne, president of Mississauga-based Worldsites International Inc., also offers franchisees an opportunity that is “unlike a typical franchise where you have a retail store, meat slicers or deep fat fryers.”

Worldsites, which is currently providing services in 53 countries, markets Web design and e-commerce services. The actual services are developed and delivered to customers over the Internet. The role of the franchisees, who each pay about $45,000 for a licence, is to drum up business in their communities, consult potential customers to help them figure out what kind of Internet services they should have and maintain ongoing relationships to ensure that customers’ needs continue to be met.

“The Internet is such a vast, almost unpredictable entity. In order to take full advantage of the business opportunities, one needs to attack this huge available marketplace with proven systems. And the one business model that talks about proven systems is a franchising system,” Mr. Mayne says. “We give people the means by which they can go out there and seize this huge, available marketplace.”

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