Closing The Gap

Minorities, especially hispanics, must claim a larger stake in the franchise market

By Robert Bond

The multi-hued face of the American population is rapidly changing: within the next couple of decades, minorities are projected to become the majority. Says Thomas Tseng, Director of Marketing for the Cultural Access Group, “This is tomorrow’s mainstream market. It’s not a niche. You can’t afford to ignore these consumers anymore.”
Changing demographics have prompted a new emphasis on minority franchisee recruitment. And it’s not only to cater to minority markets. “Diversity in any organization makes it stronger and more relevant in today’s diverse marketplace,” says Brian Spindel, President of Postnet, a business center franchise with over 500 operating units.
Recruiting minorities is an absolute necessity for the U.S. economy. Many experts believe that because of their growing stake in the economy, the success or failure of minority-owned businesses will increasingly drive the success or failure of the overall U.S. economy.
Franchising has clearly become one of the driving engines of U.S. economic growth. And considering U.S. population projections, one can readily see the importance for franchises to attract new investors from diverse populations.
Recognizing the need for a national forum to address the under-representation of minorities in the US franchising industry, the National Minority Franchising Initiative (NMFI) program was created in 2000.
The NMFI ‘s sole objective is to promote and nurture diversity within the franchise industry. The program, which is funded by various forward-thinking franchisors, is responsible for publishing The Minority Franchise Guide and website, and for putting on seminars throughout the country. In fact, the NMFI will host the first annual National Minority Franchising Summit in Chicago from August 5–7.
Clearly, the participation of minorities in franchising has not followed the growth of the overall franchising sector. So, if one assumes that the future of franchising is in the minority community, why aren’t there more minority-owned franchises?
According to C. Everett Wallace, past chairman of the International Franchise Association’s Minorities in Franchising Committee, “There are three gaps: an information gap, a relationship gap, and a capital gap” that contribute to the under-representation of minorities in franchising.
A major obstacle is the information gap—the lack of knowledge and awareness about franchising among minorities. Studies have shown that many minority communities have little or no knowledge about the mechanics of franchising, available financing or the diverse ownership opportunities.
Couple the information gap with the relationship gap, and the result it a substantial number of potential franchisees with no connection via a colleague, relative or someone they trust to provide the necessary insight that could lead to franchise ownership.
While the relationship and information gaps are difficult to overcome, the financial gap is the greatest challenge. Access to capital to start a franchise in “mainstream” America tends to come from funds obtained by borrowing money from friends and family and leveraging of home equity and credit. However, with minorities having the lowest rate of home ownership, access to substantial assets continues to be a significant barrier to business ownership.
Considering these gaps, there are many ways franchise companies can recruit minorities.
First, they have to focus more on developing long-term relationships with organizations that have a constituency within the targeted communities. Franchisors also can demonstrate greater sincerity in reaching under-represented groups by advertising in local media, sponsoring and participating in community events.
An even more successful strategy would be for franchisors to develop internal programs designed to attract minorities by specifically focusing on the three gaps—information, relationship and capital.
A large number of enlightened franchise companies are currently being very proactive and working hard to fill the information gap. They are participating in minority outreach events on a local and national level, and holding conferences in business associations, minority chambers of commerce, economic development agencies and the like. These efforts are critical for raising the necessary awareness, building the relationships and developing the trust needed to recruit franchisees in minority communities.
Many franchisors also offer financial incentives and other inducements to help minority entrepreneurs get into the franchising industry. Examples include a reduced franchise fee, flexibility on the royalty fees, and other custom-made incentives, such as loan guarantees. Volvo Rents, for example, owns its own financial division, and therefore can provide close to 100 percent financing for qualified individuals.
Since 2002, there has been a tremendous escalation of business ownership in the Hispanic community—nearly 1.6 million Hispanic-owned businesses generated nearly $222 billion in revenue. This only further demonstrates that franchisors and entrepreneurs should not ignore the tremendous opportunity that awaits in these untapped markets.
Even more important, as this trend continues, increasing franchise ownership among minorities will ensure the U.S. remains a competitive nation, guaranteeing a prosperous future for all Americans, whatever their origins.

Rob Bond is co-founder of the National Minority Franchising Initiative (www.minorityfranchising.com), an effort to increase the number of minorities in franchising. He can be reached at rob@worldfranchising.com