For some businesses, there's a clear path to growth without acquiring other companies or expanding organically: franchising. According to Statista, there are more than 800,000 franchised businesses in the United States, and that number is expected to continue growing every year. But franchising a business — licensing your business model and brand to an outside operator — requires a lot of contracts, compliance, and documentation, all of which can further complicate an already complex business model.
Brooklyn-based Harmonyze wants to help franchisors make sense of all this using AI, and it just raised $2 million in a pre-seed round led by Bowery Capital to further build out its AI agents.
The startup's custom AI agents sit in a private cloud database between the franchisor and franchisees. These agents communicate with each other and can perform over 200 tasks, such as making sure the franchisee has paid their product vendors correctly or that their insurance renewals are up to date. This allows the franchisor to ensure that they and their franchisees are in compliance with regulations. Franchising is a highly regulated industry. Another big benefit is that you don't have to spend a lot of time on such administrative tasks.
The company was founded in 2023 by childhood friends, CEO Gary Liskovich, a former product manager at startups such as EvolutionIQ and SmartAsset, and CTO Jony Greenspan, a former engineer at companies such as Salesforce. Liskovich told TechCrunch that he had dabbled in product development in the legal field but decided on franchising because the market was untapped and because Greenspan had a personal connection as his father owned a Totonno's Pizza franchise.
“Everybody knows the word franchise, but most people don't look into it deeply. Franchises account for 10 percent of U.S. businesses,” Liskovich said. “We started looking at the franchise space because there's a huge amount of unstructured data out there, and we really believe that AI can unlock that and turn it into something usable.”
Harmony's will exit stealth mode in early 2024, and has seen strong demand from franchisors since then, Liskovich said. He added that despite the demand, Harmony's is choosing to work with a select group of customers first, so it can continually get feedback to refine the product and its features.
Liskovich said the company plans to use most of the funds raised in the pre-seed round, which also included participation from Focal.VC and a number of individuals in the franchise industry, to hire and continue developing the product.
Harmonyz decided to focus on building and selling for franchisors instead of franchisees because franchisors deal with much more unstructured data, a problem that AI solutions are well suited to, Liskovich said. He also hopes Harmonyz can help franchisors find smart business practices for their franchisees and then roll them out to everyone.
“Franchisees are well known for being innovative and tweaking the system,” Liskovich said. “They're known for [McDonald’s] “The Filet-O-Fish was born from franchisees. That's where we want to start evaluating. Where are our best franchisees innovating? And then we want to use that information to make everyone more profitable.”
Liskovich believes the startup has been successful so far because it has focused on building a SaaS vertical for franchisors overall, rather than focusing on a sector within franchises, which includes companies ranging from McDonald's to Orangetheory Fitness to The UPS Store. He said that while there are many different types of franchise businesses, the internal structure of these companies is roughly the same.
There isn't a lot of competition in the franchise industry, at least for now, which is surprising given the size of the industry and the fact that it's steadily growing.
Harmonyze is currently targeting franchisors who lead sizable networks of franchisees, rather than owners who work with a handful of franchisees, and Liskovich believes the startup will probably develop the technology to work with those smaller players, but for now the markets in its target areas are big enough to keep it busy.
“We are excited about this expansion [of the franchise market]”Not only is it big, it's growing at a phenomenal rate, and this is an opportunity to continue to grow,” Liskovich said.