Iconic Tour

Guess what franchise concept is red hot

Maggie Overfelt, special to CNBC.com

A few years ago, Jennifer Beall's opponents in the business-plan competition at Northwestern's Kellogg School of Management figured that her idea, a service cleaning car seats for busy parents, would be easy to beat. At the very least, it didn't seem like a very sophisticated—or cool—concept.

"It's not sexy," said Beall. "They were all starting the next Google, and everyone was laughing at me—'You and your cute baby idea!' And then I won. I was just as surprised as they were, but babies are going to be born forever, and they're going to be dirty."

Source: Tot Squad

Today the coolest factor of Beall's Los Angeles company, Tot Squad, is its growth. Since turning cash flow positive four months after launching in 2010, the 22-employee firm, which installs, cleans and repairs car seats and strollers at shopping centers and baby boutiques in L.A. and New York City for $20 to $40 a pop, has seen revenue double each year to just under $1 million.

The rise of the specialized franchise

Tot Squad's growth points to a recent trend in new franchise formation: Entrepreneurs seeking riches with new franchise concepts are getting more "personal."

"Across the board, we're seeing the growth of more personalized services," said Edith Wiseman, president of the client solutions team at industry tracker FRANdata, citing the example of small fitness-studio chains offering one type of activity, like Pure Barre, which offers muscle-toning workouts centered around a ballet barre.

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In 2013, after a pilot program that saw Tot Squad servicing high-end strollers at some of Nordstrom's southern California stores, the chain asked the firm about expansion. "They told me to give them a proposal for a nationwide rollout," said Beall, who occasionally had problems coming up with the manpower needed in Tot Squad's core L.A. market. "And I was sitting here thinking, How will I serve their Ann Arbor, Michigan, store?"

The answer, Beall decided, was to grow by selling Tot Squad franchises, a program she launched in February after raising tens of thousands of dollars for the attorneys, consultants and technology necessary to get her franchise system off the ground. Over the past month, Beall has received more than 100 inquiries, two-thirds coming from women looking to capitalize on two of the franchise industry's fast-growing trends: child-related franchises, whose units grew by 7 percent over 2014, and providing some type of highly specialized service.

Ideas getting a more personal workout

FRANdata also reports that the health-and-fitness category saw the most new brands debut last year, with 25 names entering the market versus 11 in 2013. That's expected to continue as consumers seek alternatives to traditional gyms. "Big-box retail concepts in health and fitness is not where the industry is headed—you're seeing smaller square footage and more personalized programs," Wiseman said.

Gym brands looking to differentiate are also providing opportunities to analogous businesses such as spas and massage firms. In October of 2012, the four founders of Waxing the City, a small Denver chain dedicated exclusively to waxing, sold a large stake of their business to Anytime Fitness, one of the nation's fastest-growing gym franchises. The partnership enabled Waxing the City's founders to franchise without having to learn much about the process; today founder Summer Hartshorn Vasilas concentrates mostly on developing Waxing's training processes for franchisees.

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"Initially we didn't have any intentions of franchising," said Hartshorn Vasilas, noting that of her firm's 22 locations, two are corporate-owned; 73 franchise units have been sold. "As the idea took off, folks approached us … and to grow faster, franchising for us was the answer versus trying to do it on our own."

Do-gooder franchises targeting your principles

Healthy-food vending machines, the popular non-junk food dispensers distributed at schools and workplaces, highlight another franchising trend: Businesses that exude some sort of socially conscious angle. "We're seeing young [franchisors] looking at 'how do we solve the worlds' biggest problems through the franchise model,'" said Jennifer Kushell, president of Your Success Now (YSN), whose youth education and marketing agency partnered with the IFA to kick off NextGen in Franchising, a program that hooks up new entrepreneurs in franchising with industry leaders.

Kushell pointed to global companies like Jibu, which is addressing the water crisis in Africa by offering entrepreneurs a water-equipment franchise story to sell. FRANdata's Wiseman said that the short-term growth in the social sector is likely to come from franchises solving smaller, more local problems. "A brand that's serving cancer patients or providing healthier [snack] alternatives to kids is considered social, too," she said.

Franchising has a branding problem with young people.
Jennifer Kushell
president of Your Success Now

The number of brands offering franchises in the U.S. is up threefold over the last two decades, said Matt Haller, vice president of public affairs at the IFA. But the focus on the social norms alludes to a trend important to newer franchises: appealing to younger Americans and regaining a little of the cool factor that has not been associated with most popular franchises for a long time.

Beall said when she was pitching Tot Squad at Northwestern, the whiff of potential franchising around her plan didn't help its appeal among her fellow business-school classmates.

"I think the millennials are coming of age … Their influence is definitely being felt in franchising," Wiseman said.

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Despite contributing $495 billion to the U.S. economy last year, franchising—with its perception of lumbering, unhealthy fast-food brands—isn't usually foremost in the minds of new business-school grads, said YSN's Kushell. "Franchising has a branding problem with young people," she said.

That challenge has already asserted itself in the rise of healthier, fast casual food brands. And long lunchtime lines at Chipotle Mexican Grill, Shake Shack and Zoe's Kitchen offer the best clue—along with their successful publicly traded stocks—of what's expected to rule franchising this year.

With 157,595 franchise establishments, the quick-service restaurant sector is the largest piece of the U.S. franchise pie, according to IHS Global Insights and the International Franchise Association. While big chains like Dunkin' Donuts and Subway will drive much of 2015's projected 1.6 percent growth, fast casual brands competing on food quality and healthier perceptions—think Pita Pit, a sandwich chain that lauds its lower-carb wraps—are likely to come to light under Chipotle's shadow.

Fast casual chains and Tot Squad share one trait of successful franchises that hasn't changed much over time. Wiseman noted that what typically does well in the franchising world are concepts that have already gained traction on a smaller scale. "Before frozen yogurt blew up in franchising, it already existed on the street," said Wiseman. "When brands become popular enough that lines form out the door, it's then that the idea could [take off] as a franchise."

Following a dip in the number of new franchise concepts since the recession, FRANData said it is projecting that 2015 is the year that franchise creation returns to its prerecession level.

Source: FRANData

For now, Tot Squad's Beall is hoping that her idea of improving the work-life balance of young mothers will compel a new generation of entrepreneurs to buy into her business. "I initially had 50 ideas in a spreadsheet, and the car-seat one rose to the top—every mom I talked to wanted the service, but no one was doing it," said Beall, who recently expanded Tot Squad's offerings to include stroller repair and car -seat installation, a service that many local police departments provide for free but often feature months-long wait lists.

Giving Tot Squad franchisees the opportunity to hold 10 or so cleaning events a month with nearby baby retailers, Beall hopes to see Tot Squad in 10 to 15 markets by the end of the year. She envisions giant baby-gear service centers in the nation's largest big-box stores: "My goal is to be the Geek Squad of the baby industry," she said.

By Maggie Overfelt, special to CNBC.com