In a nutshell, it means that I (a) find a great concept (to date, Five Guys and NAKEDPizza) and a great territory (MA and NH have great demos and density) then buy the rights and close the deals, (b) work on the business constantly: find great sites, obsess over marketing and PR, hire/motivate/direct the best team I can assemble, and above all, (c) make sure we never run out of money. This is a different model than Franchising 1.0, in which you have a real full-time job either doing something else entirely or performing a vital daily function in your own stores.
Franchising 2.0 is about bringing operations, financial discipline, and the ability to scale to someone else's business idea and model. Working "on" the business, the right way, is a full-time job. It cannot be done any other way. This fact especially true in performing at a high level in real estate and marketing, which are key in high-margin businesses. When franchisees lose focus on these details, they can and will get killed and my friends at Apex or Nixon Peabody move in.
It is also about considering all stakeholders (employees, suppliers, partners, investors, community) more carefully and making long-term business decisions. When you develop only 1 or 2 units, you can take shortcuts that are suicide with 10, 50 or 100 units on your horizon. Ditto for franchisors.
NAKEDPizza knows this and this is one reason (of many) they are turning franchising upside down by starting with sophisticated developers. This then enables them to collaborate with franchisees in new ways to advance the concept. In turn, this requires a culture of openness, honesty and curiosity at the franchisor level - but then, to become and remain a great company, you need a culture based on those things anyway.
Area development is a business Warren Buffett would love: consumes capital (i.e., building stores), gets a high return on that capital (i.e., cash-generation from stores), and has a decent margin of safety (way better than software). For experienced developers with access to funds, it's like 1870 in railroads or the 1994 Internet: real estate's available, you can hire great contractors and managers, and my VC friends are funding the next wave of excellent and free local marketing technologies on top of Facebook, Foursquare and Twitter.
Professional investors have overlooked Franchising 2.0 as an investment class because of Franchising 1.0's brand image - but at the risk of sounding like a character in a Michael Lewis book, I say this will not last.
All that said, this is a people business. If you hire the wrong people, or hire the right ones but treat them poorly, you will fail. In NAKEDPizza, for example, Mark Cuban and the Kraft Group (owners of the NE Patriots and Revolution) are investors in the franchisor, with the Krafts part of my area franchisee group as well. Will they be a valuable strategic partner long-term? Definitely. Does their involvement get the right product delivered on time every time by a knowledgeable and personable associate? Nope. My cash registers start at zero at the start of the day like everyone else's and in a social media world, it is imperative that you serve customers an honest product in an honest way.
Summing up: Franchising 2.0 is a growing trend that enables developers and franchisors both to make money for their investors, and have a real impact on the community - financial promise with social purpose, if you will. It involves bigger territories, more capital and more collaboration, a more long-term approach, and the banking of real intellectual property that generates lasting value. This wave is only starting and I believe is the future of the $1.5 trillion U.S. franchising industry.
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