September 2, 2014

Bubbles Do Burst

I can’t decide if it was more fun to burst the bubbles that I was blowing through one of the bubble wands that I used as a kid or if it was more fun to watch them float high up in the sky, hoping that they wouldn’t burst. But, they always did. It’s just what bubbles do.

Bubbles occasionally burst in business, too.

blowing bubbles

Anita Campbell, Founder of Small Business Trends, recently wrote about Instagram, the photo-sharing application that was purchased by Facebook for $1 billion. In her thought provoking article, she made a point mentioning the fact that The New York Times, (which has been publishing continuously since 1851) has a public stock value less than Instagram’s $1 billion price tag. (Amazing!)

In response to one of the comments on her post, Anita responded by reminding readers of the fact that Instagram doesn’t even have a revenue model yet. And yet, Facebook wrote a huge check for it. What gives?

It’s been said that, “Pain has no memory,” and this transaction could prove to be one of the best examples ever given for that quote. Could we be headed into another dot-com bubble?

To refresh your memory, I’ve included the formal definition of one, for your reading pleasure. From Wikipedia;

“A combination of rapidly increasing stock prices, market confidence that the companies would turn future profits, individual speculation in stocks, and widely available venture capital created an environment in which many investors were willing to overlook traditional metrics such as P/E ratio in favor of confidence in technological advancements.“

Maybe this time it will be an “App” bubble…or maybe even a “Tool” bubble. Only time will tell.

Naturally, I started thinking about my industry, and some of the possible “Franchise” bubbles that could be on the horizon, but for reasons that have nothing to do with a “no revenue” model.  Take these examples:

Example #1:  Frozen Yogurt

In the 1980’s, shops appeared almost everywhere; the big names were Arkansas-based TCBY, and I Can’t Believe It’s Yogurt, which was purchased by Yogen Fruz in 1996.

I remember how “hot” frozen yogurt was back then, because it was around the time my Dad started his franchise consulting business, and TCBY was all he talked about. TCBY remained popular for a few years, but they ran into problems, and ended up being bought by Mrs. Fields Famous Brands. (Mrs. Fields just recently avoided a 2nd bankruptcy filing.)

Two dominant brands battled it out in the 80’s, and both were bought out. Today, there are more than 20 different frozen yogurt franchise brands competing for prime retail space, and consumer dollars.

(FYI; in the past year, I’ve been contacted by no less than four people who’ve wanted guidance on turning their one-independent frozen yogurt shops into franchises.)

Example #2:  Senior Care

On the surface, seniors are a strong demographic to target. According to the US Census Bureau, 20 percent of the US population will be 65 and over by the year 2050. (Currently, it’s around 13 percent.) Obviously, this is a growing market.

Recently, I thumbed through a recent copy of The Franchise Handbook, a 25-year old publication that’s delivered to bookstores on a quarterly basis, and counted 35 different Senior Care franchises. While that may sound like a lot of franchises focused on the senior population, you need to realize that those are only the ones that advertised in one particular publication. There are even more.

In August of 2010, I wrote that:

“I’m getting a little concerned. I’m starting to wonder if there will continue to be enough senior citizens to go around.”

In addition to the plethora of franchises that are focused on senior care, there are thousands of independent small businesses that offer the exact same services throughout the country.

Those are two segments in franchising that I’m keeping a close eye on. I’m also monitoring trends in fitness franchises, food franchises, (especially burger and pizza operations) and commercial cleaning franchises.

So far, all the franchise types that I’ve mentioned are bringing in revenue, and for the most part, they’re adding new units.

Here are my questions:

  1. Are these franchises still selling like mad because there’s a real need for their services and/or products?
  2. Are franchise development teams able to easily sell new units because they’re using the, “There’s still plenty of business out there,” mantra?
  3. Am I being paranoid about possible franchise bubbles?

I’d love to hear your opinion.


Bubble Photo via Shutterstock

9 Comments ▼
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Joel Libava - Franchise Expert


Joel Libava Joel Libava is the Franchise Expert for Small Business Trends. Joel, The Franchise King®, equips today’s prospective franchise owners with time-tested, proven techniques designed to increase odds of success. He does this through one-on-one coaching, and gobs of useful content that can be found on places like Small Business Trends, SBA.Gov, and his award-winning franchise blog, The Franchise King Blog . He’s been featured in Entrepreneur® magazine, and is frequently called upon by national media outlets and publications for his no-spin insights into the world of franchising.

9 Reactions

  1. Joel-
    Very poignant. Good question: how many of a given type of franchise can the industry sustain? But to counter that, we have plenty of different fast food chains, and they all seem to thrive. Are there industries you’ve seen shrink as a result of this bubble bursting yet?

    (PS I’d love for you to start a topic on this on the forum!)

    Susan

  2. Thanks, Susan!

    Fast food chains remain busy, (in general) because of what I call, “Dual-income family pain.”

    Unless one party is making huge money, it takes both the husband and the wife to be in the workforce to stay ahead of the game. This creates a serious lack of time to do things like preparing dinner. So, lots of these families stop at fast food franchises on their way home from work, or soccer games etc. because it’s faster.

    Now, obviously this isn’t breaking news, Susan. But it is still the reality of living in a fast-paced, and expensive time. Fast food establishments will continue to do well, financially.

    I’m not going to go into the healthy vs. no very healthy food being served. The bottom line is that families are purchasing fast food in droves.

    I’m not seeing any food franchises shrink as of yet.

    The Franchise King®

  3. I live in a college town and think you’re spot on with the frozen yogurt bubble. Sure they provide a convenient date spot that’s affordable for college students, but I’ve seen so many come and go over the past few years (both independent and franchise). My guess is that the low overhead lures them in and then they realize how competitive the space is for a limited number of customers.

    • Thanks for commenting, Robert.

      I like frozen yogurt. I just don’t understand why so many folks dive in an already crowded market.

      Usually, by the time someone enters a joins hot business space, it’s way past the heat stage :)

      The Franchise King®

  4. I admit, I made serious inquiries about TCBY back in the day. The $350k franchise fee was smart, because it made me think long and hard about doing it (I lived near DC at the time). I’m glad I passed.

    I agree with you about fast food. Even though I can’t eat it anymore, I understand how busy folk w/o a lot of money (who don’t cook at home) keep going there. And kids can still eat all that grease and not mind lol.

    Thought provoking term, ‘bubble.’ Not experienced enough to offer a thought, but I bet a lot of people will try to jump on whatever bandwagon they think worked for Instagram. Keep us posted, Joel AND Anita.

  5. Hi Joel — Your article also reminds me of the daily deals space. Groupon made waves. Everyone heard about its huge IPO and high-growth business (which, we are now learning, has some cracks underneath the hype), and then a gazillion others jumped on the daily deals bandwagon. In two or three years the market was over-saturated.

    I love this line: “I’m starting to wonder if there will continue to be enough senior citizens to go around.” I wonder that same thing about a lot of hyped-up industries and categories. ;)

    - Anita

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