Startup Franchises

The world’s biggest fast food chains don’t make money selling food – they make money selling subscriptions. 93% of McDonald’s restaurants are franchises, where the restaurant is owned by McDonald’s and rented out to a franchisee who operates it. This model ensures McDonald’s a steady revenue stream independent of changing seasons or sensibilities, while also helping them cut operating costs. It’s a great business model.

Franchises make sense because in the physical world, new locations cater to their immediate surroundings, carving out their own little market share (in this context, see the beautiful Hotelling Location Model). But, in my mind, there is value to franchising in SaaS companies as well: marketing, sales and support would all benefit from a franchisee familiar with a local market.

The geofencing of these franchisees would need to be on a national level. Imagine if MailChimp had a franchisee in Israel. All marketing would be localized, support would be in Hebrew and dedicated Israeli salespeople would call local companies to close deals.

Consequently, the folks at MailChimp would have more time on their hands to build a better product and make more sales in their native markets.

This ties in to the trend of investors purchasing small established SaaS businesses. Startups could sell national franchises to these investors, raising money, offloading work and creating a recurring revenue stream in one stroke.

If you have a SaaS startup, consider selling some franchises!