Inc. magazine is one of the best sources of new ideas and inspiration for small business owners, including franchisees. Although Entrepreneur magazine covers the franchise space much more extensively, I find Inc. magazine’s stories to be more compelling because they feature start-ups, as well as established businesses, operating on a much larger scale and with grander ambitions.
Case in point is their recent cover story featuring one of the most successful online retailers you’ve never heard of. Just last year, the founders of CSN Stores radically transformed their company’s already successful business model, which goes all the way back to 2002. The company went from operating hundreds of niche retail sites (think bar stools, diaper bags, and Adirondack chairs) to one consolidated mega site selling housewares of all kinds under a single brand name, Wayfair.
In 2011, their former niche sites were on track to generate combined revenues of around $500 million. With the new Wayfair site, they are setting their sites on the $1 billion mark. Wayfair is off to a great start — it had its best day ever, selling $4 million worth of products, on Cyber Monday, just two months after launch.
But transforming one’s business model can lead to some unexpected results. In the franchise space, the name that comes to mind is The UPS Store, a company I’m intimately familiar with, having been a franchisee from 2003 to 2006 (My store in San Francisco was one of the first in the nation to open as a UPS Store). Under the current business model, franchisees lost the ability to set their own prices for UPS shipping services, in exchange for the best discounts available to retail partners.
The entire network had such high hopes that being associated with a brand like UPS would lead to million dollar stores. What they did not anticipate was how quickly consumer behavior can change. Almost immediately, customers learned how to use the Internet to create their own shipping labels and to drop off their pre-paid packages in the stores. In this scenario, the franchise owner is paid just a nominal amount to receive the package. This has been a major bone of contention between franchisor and franchisees ever since.
For years, The UPS Store has been trying to push document services for growth. But with a name like The UPS Store, the brand will always be known for shipping. So despite years of heavy advertising, this profit center just hasn’t gained a lot of traction. Making matters worse is the steady decline in demand for these services, now that most people prefer to read and exchange documents through their various devices.
During the early years of The UPS Store, the company was able to sell a lot of franchises to people who were attracted primarily to the UPS brand name. I think this led to saturation in a lot of markets, and cut into the revenues of existing stores. Sometimes I wonder if the entire network would have been better off as Mailboxes Etc., a brand that is known for mailbox services, which is an amazing profit center. I guess we’ll never know.
The story of The UPS Store is a bit of a cautionary tale of what can go wrong when an established business model is radically altered. But in fairness to UPS, I suppose they really had no choice but to adapt and take risks, since the industry itself was — and is — changing fast.
This topic hits close to home because I’m currently working on a project that will transform the business model of Franchise Chatter. The new strategy is not quite ready for prime time, but it involves a radical change that involves a lot of risk. Wayfair’s journey has inspired me to take one giant leap of faith, although on a much smaller scale. From The UPS Store’s experience, I’ve learned to expect the unexpected, and to be prepared for the inevitable twists and turns along the way. But I’m confident that this is the right way forward.