Business services applying 'clone' principle of the franchising game
Boston — Leo Lauzen believes the secret to a successful franchise can be seen in, of all things, a McDonald's French fry. Mr. Lauzen, a franchiser, says the fast-food fries are the result of careful research and mounds of near-misses and almosts. And industry pundits now say the same marketing approach that helped make these fries famous is being applied to an ever-growing array of service industries.
Hair salons, carpet cleaning services, photo finishing labs, and electronics repair shops are just a few of the service-oriented businesses that have been making it big by franchising. In addition, there are a growing number of franchises which serve the needs of business, such as tax preparation and accounting services.
Many of these new franchises are wedging their way into the large shopping malls and "strip" developments in an effort to attract the most customers.
Some are more unusual than others. For example, HouseMaster of America franchises a home inspection and warranty service. It checks out houses and other buildings in the same way mechanics look over used cars. An engineer's report is given to the prospective buyer, along with a one-year guarantee on all parts of the house found to be sound.
In essence, franchising is a licensing arrangement that allows the owner of a product, service, or method to distribute through semi-independent dealers, called franchisees. But there are several variations on this theme, including franchises that involve only trade names and those that involve only product distribution.
Many new service franchises are of a third kind, called business formats, in which a whole business system is sold to the individual franchisee, complete to the last detail.
"What we're doing in franchises is what McDonald's and Midas Muffler have already done," says Mr. Lauzen, chairman of the board of Comprehensive Accounting Corporation, an accounting service with 225 franchises. "We study each function and identify the most efficient way of doing it."
For instance, Comprehensive discovered there are 21 ways of putting checks in numerical order. "But only one way is fastest," Lauzen says.
He likens this streamlining to the "industrialization" process, in that the most efficient methods and the most appealing marketing packages are used. This is what McDonald's did with its French fries, he says, and the same thing can be done wherever there is more than one way of doing things.
It's this accumulated wisdom available from a franchise corporation which makes the difference between success and failure, industry experts say. Newcomers don't need to make the same costly mistakes made by an earlier franchise-holder in their search for efficiency.
"In essence, opening one of our facilities is just cloning the success formula" established over the last 20 years, says John Amico, president of Hair Performers Personal Grooming Centers.
Hair Performers, founded in 1961 and developed into a local chain, didn't make the jump into franchising until three years ago. But business has been booming ever since, with more than 100 offices now in operation from Ohio to California.
Mr. Amico says the company plans to open 100 more locations in the next year and will be penetrating East Coast markets within the next 18 months.
"Franchising is brand new to this industry, like real estate 10 years ago," Amico says, pointing out that nearly all of his competitors are small, independently operated salons. But he believes consumers are ready for his kind of business.
"They [the consumers] have the trust of knowing the name of the facility," he says. This means that they will know what to expect when they walk into any Hair Performer salon, whether it's in Phoenix or St. Louis.
But along with the advantages of national recognition, there are some bottom-line reasons for the growth in service franchises.
"There's no doubt that, under current circumstances, franchising is one of the few routes were capital is available for new business starts," Edison Zayas, an economist with the National Federation of Independent Business, says.
Mr. Zayas points out that franchises are filling the gap left by small-business men who can no longer find the financial backing to set up shop. Commercial banks are often more willing to lend money to a franchisee than to an independent small-business man.
But even franchises are feeling the money pinch these days, says Donald Boroian, president of Franchise Concepts Inc., a franchise consulting firm with clients across the United States and as far away as Paris and Manila.
"We're finding people are looking to buy businesses which they can afford," says Mr. Boroian, who not only helps to launch new franchises but also counsels people who want to buy into one.
The service-oriented franchise is less expensive, he says, because, among other things, no costly or perishable inventory is required.
Industry experts say it costs between $300,000 to $500,000 to set up a fast-food restaurant today. In contrast, many service franchises sell for less than $100,000.
Of course, not all businesses can be franchised, Boroian points out. Contrary to popular belief, he says, "not all pizza operations are franchisable." A pizza parlor or some other business that was poorly run would not likely make a good franchise.
And some that are still fail. Figures compiled by the US Department of Commerce show that nearly 4 percent of all business format franchises close their doors each year for a variety of reasons.
Meanwhile, Boroian says there are a growing number of service industries where "affiliate franchises" are forming --In this arrangement, people already in business band together under a single franchised banner, rather than buying into a business which has been organized by a corporation.
Other affiliate franchises include television repairmen and optometrists, and Franchise Concepts is working on an affiliate franchise called Gentlemen Plumbers -- which will actually unplug a sink or connect the garbage grinder.