Franchising grows from burgers to boutiques. Giving opportunities to people with skills and ambition, but no background
Boston — Carol Green didn't realize that going to the local Weight Watchers clinic would launch her into business. From the franchise company that owned the clinic, she bought one of her own, which she managed for 18 years. Now she is president of her own Denver consulting firm, Franchise Services of America.
``It was a great opportunity,'' says Ms. Green without hesitation.
As chairwoman of the Women and Minorities in Business Conference for the state of Colorado, and winner of a Small Business Administration award for women in business, Green has been telling both women and minority groups - and anyone else who will listen - that franchising is a gold mine of opportunity.
While minorities and women are not necessarily less skilled, ``they don't know how the system works, or how to become an insider to available knowledge,'' says Green.
A year ago, Maryland began a program to provide up to $1 million in investment support to minorities, women, and handicapped individuals interested in buying a franchise. The program is being followed by several other states that are working on assistance programs.
``We average two applicants a month, and have already accepted 22, at a total investment of $864,000,'' notes Catherine Lockhart deputy director at the Maryland Small Business Development Financing Authority. ``We are working on emergency legislation to raise the spending cap to $3 million.''
Starting a company requires a tremendous amount of capital as well as a certain amount of knowhow. Lack of money to expand forces many foundling firms to close in the first year.
And while success is not guaranteed, the relatively low cost of buying a franchise, and the backing franchisors provide makes the investment appealing to people without experience, Ms. Lockhart says. That experience can be used later to go out on one's own.
Traveling trade show
At least 500,000 people own franchise businesses, according to the International Franchise Association. To drum up more interest, the IFA is touring the United States with its Franchising Exposition, which last year drew over 45,000 people interested in buying or investing in a franchise. [The Expos will be in Los Angeles on March 5 and 6, in Dallas March 26 and 27, and in Boston on April 16 and 17.]
No longer limited to fast food joints and barbershops, franchisors are shaping up their image, and offering boutiques, ``super'' convenience stores, full-service restaurants, day-care centers, and even business consulting firms to franchisees.
``The franchise concept is being applied to any kind of [service] business you can imagine,'' says Patrick Boroian, president of Francorp Inc., a development and consulting firm in Olympia Fields, Ill.
A franchisor that sells all or some of its individual stores to franchisees, who run each unit as their own but keep the parent company's name or trademark. Unlike an independent business owner, they must pay a percentage commission back to the franchisor. In return, they get the parent firm's support and marketing plan.
Through it, ``people are realizing the American entrepreneurial dream,'' says Rick Cardin, former director of the Cambridge Research Center, and now chairman of The Restaurant Group, a franchise deli chain based in San Francisco.
The format appeals to both a changing workforce and a tumultuous corporate environment. With the ranks of unemployed middle-Americans swelled by mergers and company belt-tightening, people who have capital to invest and the desire for job security may be joining the millions employed by franchises, according to a study by The Naisbitt Group, a New York research firm.
These people want to work for themselves, but they need the backing of an established product or name, says Greg Matusky, co-founder of Comprehensive Communications, Inc., a Philadelphia, Penn. marketing firm.
Ms. Green of Franchise Services says franchises are ideal for two groups in particular: ``Men over 50 who've been laid off from middle-management and above positions, and have trouble finding new jobs even though they're intelligent and skilled people; and middle-aged women returning to the work force.'' These women, he says, don't have long track records and are generally employed at substandard wages, but they may have been extremely productive in the nonprofit sector, and could easily manage a business.
An instant `in' into business
Green says the ``presence of a professional organization provides people with an instant `in' into the world of business.''
For the companies they buy from, the concept is also ideal. It has become a sizeable chunk of the US economy, spreading into Australia, Canada, Japan, and the United Kingdom.
In 1987, US sales for franchisors were close to $600 billion, or 20 percent of the gross national product, according to the Commerce Department. By the year 2000, is is expected that $1 trillion in sales - one half of all retail sales - will come from this industry which has been growing an average rate of 10 percent a year.
By letting individual franchisees invest in and finance new outlets, a firm can expand rapidly, while avoiding the difficult task of obtaining enough financing to build itself.
``It permits you to build units from the investment of people who pay to operate individual stores,'' says John Marchessault, vice-president at Brighams, Inc. a Boston-based restaurant chain, which plans to expand from 72 stores to 150 by the end of 1993 through franchising. ``If you want to move with any speed, you need people to come in and buy [franchises].''
When New York's LeBow Industries Inc. bought Brighams, it encouraged the firm to sell the units it owned and sell the same number to franchisees. Brighams could have gone to a venture capitalist and borrowed the money, Marchessault acknowledges, but that would be a longer and far more difficult route.
``Instead of just selling assets and walking away,'' Boroian adds, ``you're getting an ongoing annuity from the sale relationship.''
You also get a close working relationship, in many cases, which may mean daily contact. Without a good and mutually supportive relationship, ``the franchisee won't be successful,'' says Joel Biller, senior vice-president at Manpower, Inc., a Milwaukee-based franchisor of temporary help that generates one third of its franchise sales overseas.
More rare is the type of company that believes in ``franchise freedom.'' Al Olshan, president of Friendship Inns International does, and only asks each motel for a fixed commission. ``We don't look at their income tax returns, and we don't tell them how to run their business.... If they make a million dollars more next year, they keep it all.''
No experience preferred
But even when a new franchisee doesn't have any experience, the enterprise is more likely to succeed than a totally independent business, Mr. Matusky says he found when researching a book on franchising, ``Blueprint For Franchising a Business'' (John Wiley & Sons, New York. $24.95). ``He or she needs the parent company, so they follow the business system set up by their franchisor exactly.''
As a result, many franchisors say they prefer people without specific experience and without bad business habits, says Joseph Sanfellipo, president of The Restaurant Group.
When Mr. Sanfellipo was 18, he opened an automotive transmission shop. Though initially successful, he says, the shop soon failed because he didn't know how to expand his business.
Lack of expansion and inadequate money to do so are the major reasons up to one third of business start-ups fail in their first year, according to the US Small Business Administration.
By comparison, less than 5 percent of franchises have been discontinued since 1971, says the International Franchising Association.
Though Matusky and others don't believe the success rate is as high as 95 percent, they do agree it is a lot higher than for the typical business. Still, he says, ``there are a lot of things going on that mask failure ... franchisors buy back franchises that are struggling.''
An individual can buy into a franchise with as little as $35,000 to $50,000 in cash, and can borrow the rest of the $70,000 to $130,000 total investment. With the housing boom, many people have used the equity in their homes or their parent's homes as collateral towards a samll franchise operation.
``It's the ultimate efficiency of capital,'' Mr. Boroian at Francorp says. ``You get an owner who stands behind the counter, keeps the premises clean, and takes care of the customer.''