Buying a Franchise in the Age of AI? Ask These Key Questions First. As AI lowers barriers to entry and accelerates business innovation, franchise brands must evolve to remain relevant. Here's how to evaluate franchise opportunities in this new era.
By Ruth Agbaji Edited by Carl Stoffers
Key Takeaways
- AI is democratizing business knowledge, reducing one of the historical advantages of franchising but also creating new opportunities for brands that integrate it.
- Community, human connection, and ongoing support remain key differentiators that no AI tool can replicate and smart franchisees should evaluate these factors.
- Franchise buyers should now assess brands on their AI readiness, including tools for marketing, inventory, training, and customer service.
Opinions expressed by Entrepreneur contributors are their own.
Franchising has thrived on offering niche skills, expert knowledge and a formula for success perfected by the franchisor. Traditionally, franchisees can take advantage of developed intellectual property and expertise, providing a charted path to success. But the current situation is evolving at a breakneck speed.
As AI tools such as ChatGPT democratize knowledge and act as business coaches, the conventional value proposition of franchising is again challenged. AI has dramatically reduced the entry barrier for most companies, with McKinsey's The State of AI in 2023 report showing 55% of organizations now adopting AI in at least one business function, causing a rush of new businesses and franchise options to flood the market.
This raises a basic question: What is franchising's potential in this new era, and how do potential franchisees go about adequately evaluating their options?
Strength of the community
One thing that no AI can replicate is genuine human connection and community. During the pandemic, it was clear that people were hungry for in-person connections. Healthy franchise communities offer great networking, mentorship and shared experience that assist in developing resilience and success.
If you are looking at a franchise, ask to speak with current franchisees regarding their experience with the community. Do the franchisees speak with each other on a regular basis? Does the franchisor foster the sharing of knowledge? Are there conferences or regional meetings each year? The quality of these relationships can be a lifeline during difficult times and an accelerator during times of growth.
Adaptation to AI
Quantify the degree to which the franchise company has embraced and incorporated AI in its operations and support systems. Resistance to adopting AI could be a sign of a sluggish company that is out of pace with technology changes. Pose direct questions regarding AI-driven tools for operations, customer service and marketing and training. For instance, does the franchise leverage AI for examining customer data and making location-specific marketing suggestions? Have they created AI applications that assist the franchisees in optimizing inventory or staff? The responses will tell you if the franchisor is at the forefront or lagging behind.
Assess how well the franchise's technological infrastructure supports AI applications. Look for AI-powered solutions that are supporting supply chain management, data analytics, marketing automation or customer experience.
To put it into perspective, consider a point-of-sale system that tracks buying habits and recommends inventory shifts and promotions. This type of integration enables franchisees to make informed decisions without having to become data scientists themselves. Absence of AI integration can indicate a franchise that is not evolving or competitive.
Related: The Artificial Intelligence Revolution: Adapting To A New Business Era
Brand resilience & adaptability
Consider the franchise's ability to evolve and remain relevant despite market disruption. Franchises that engage in research, development and digital transformation demonstrate forward-thinking leadership.
Inquire about how the franchise adjusted in recent market changes. Did they rapidly adopt new processes and technologies, or did they stumble in making a shift? Solely depending on old ways of doing things might suggest a franchise that is unable to compete in an AI-driven economy.
Training & data security
Good training systems must include AI-enabling learning tools. Look for adaptive training platforms that provide you with a personalized learning experience adapted to your performance and needs. This streamlines learning and startup. Check if AI systems like analytics and chatbots are provided.
Top franchisors now provide 24/7 support through AI systems that can respond to common questions, leaving human interaction for more complicated problems. This hybrid model delivers improved service at reduced cost.
With more integration of AI in operations, it's essential to understand how a franchise handles sensitive information. Consider whether the franchisor has clear policies and procedures for addressing data privacy and maintaining cybersecurity.
This is increasingly important as franchises collect more customer data through loyalty programs, online ordering and other digital platforms. Ask about recent security audits, privacy policy adherence and data breach policies. How a franchisor deals with these issues reflects its professionalism and risk management ability overall.
Related: 'There's an Inevitability' that AI Will Transform the Franchise Industry. Here's How It's Already Happening.
'Quality human relationships'
Though AI optimizes operations and analytics, brands excelling at human interaction will flourish. Humans are ready to pay extra for services that provide incredible customer experiences by humans, with PwC's "Experience is Everything" report revealing that 82% of U.S. consumers want more human interaction in their customer experience.
The most effective franchises are achieving the right equilibrium — leveraging AI to carry out repetitive functions and data analysis and releasing their individuals to concentrate on building quality human relationships. When looking at franchises, take note of how effectively the franchisor balances AI technology with a solid emphasis on bringing that human relationship to the forefront.
Looking ahead
Franchising is still a viable business model, but choosing the correct franchise is more important than ever. Although some of these remarks might appear to be in the future, it is necessary to understand that most companies are still playing catch-up with the promise of AI and introducing it incrementally.
Do not dismiss a franchise simply because it has not fully moved towards AI yet. Instead, use these lenses to evaluate prospects since the day will arrive when the presence of AI deployment in your business will be as significant as having a website, with Gartner predicting that by the end 2025, 70% of organizations will have operationalized AI architectures.
Before you spend a half-million dollars, ensure you're getting behind a brand that is, at the very least, headed in the direction of artificial intelligence integration. The franchises that get technology efficiency and true human connection right will reign supreme in the next business age.
Related: Will You Be Able to Adapt and Thrive in the AI Era? Ask Yourself These 7 Questions.
