- Category: Work
- Published: June 23, 2011
- Written by Susan Shaw
When considering career options, many of us know we'd like to be in business for ourselves but are unsure of exactly where to start. Additionally, the excitement of entrepreneurship has become tainted by horror stories about dot.com companies burning through piles of cash and closing their virtual doors, and of mom-and-pop businesses losing their neighborhood niche when a megastore moves in.
However, consumers are buying goods at an unprecedented rate, despite threats of recession, and spend nearly a trillion dollars worldwide in franchised businesses annually. The franchise way of doing business is unique-it offers the independence of "being the boss" combined with the security of working within a business that has already proven to be profitable.
William Jackson, nicknamed "Bill," a retired Air Force major, is hugely successful as a franchisee today. Jackson was the first African American owner in the Great Clips chain, a national leader in the hair care industry, and will own twelve Great Clips locations by the end of next year. Certain that Jackson had the "right stuff" to help build the reputation of the Great Clips venture, upper management pursued him as a candidate aggressively. Great Clips flew Jackson to their headquarters, greeted him with a banner reading "Welcome Bill Jackson!" and footed the bill at an exclusive hotel while Jackson met with corporate heads. Impressed by their professionalism and certain that the Great Clips chain was a match, Jackson opened his first store in Arizona in 1989.
What kind of person does it take to become a successful business owner in a franchised system? Free spirits with entrepreneurial edges and wild creative urges are most definitely not a good fit here. If you insist on designing the concept and structure for your business, and love constantly experimenting, a franchise is not for you. Successful franchisees are those with a fierce devotion to the concept of individual initiative, but who thrive on routine and structure. Motivation is a key, but franchisees must be capable of maintaining motivation to work within a tightly defined system, and have the desire to make that system work.
"Franchise owners love military retirees," says Jeff Elgin, CEO of FranChoice, on the Web at FranChoice.com, a screening and support service that matches prospective business owners with quality franchise opportunities that suit their personality, work style and financial means. "If you had to pick one classification of people that could be successful as franchise owners, even more than downsized executives or any other population-it's military personnel. Franchisers are looking for leaders who are capable of managing others effectively, sometimes in a high stress environment, but who are also used to operating within a system. A good franchise opportunity has a very tightly defined system, and if you follow that system-you will succeed."
Franchising is simply a business strategy and marketing system rolled into one. In business, the term franchise describes the exclusive right to market a company's goods or services in a designated territory. The franchiser provides the product, the name, sometimes the physical business location and the advertising in return for a specified franchise fee and a share of the profits. The franchise system creates a network of interdependent business relationships-franchisees benefit from risk reduction and the safety of working in an operating system that is already tested and proven to be profitable, where the most effective means to build the business are already in place. The franchisee provides capital to expand the business's brand, and the management talent to execute the operating system.
Hundreds if not thousands of businesses operate on a franchise concept, in a wide variety of business arenas. Although fast food comes to mind quickly as an example of a franchise, with McDonald's being the largest franchise in the country and probably the most well known, food service is only a small corner of the franchise world. Some business names have national recognition like Ben & Jerry's ice cream or Blockbuster Video. Others are names that you may not be familiar with as the business thrives only in one part of the country. However, opportunities are available in an incredible scope of industries, from car rental, to hotels and lodging, to auto repair, construction, computer and high tech repair, and even in providing unique services like elder care or recession proof maintenance services like water damage clean up.
Where to Begin? Look in the Mirror
However, although the idea of being your own boss has almost universal appeal, taking on that responsibility involves some serious consideration. Where to start? First, take a serious look at yourself, your personality, your habits, likes and dislikes and core values. Are you an honest, service-oriented person who gets along well with others, is coachable, and can fit into an existing organization? Calvin B. Haskell, Jr., founder and past president of Franchise Solutions, Inc., the author of How to Buy a Hot Franchise and Not Get Burned, recommends that prospective franchisees do an intensive self-assessment to determine their readiness to forge ahead. Haskell references an old business adage, "People don't plan to fail, they just fail to plan." Haskell states that the best way to avoid making a commitment that is a mistake is to "know yourself well, and investigate franchises thoroughly."
Many overestimate the independence and freedom that self-employment offers, failing to realize that franchise ownership, and business ownership in general, can demand an intense focus on a 24/7 basis. "Many people aren't comfortable with that idea," Elgin says. "They don't want the responsibility or the pressure. So, the first thing we ask people interested in owning a franchise is, 'Why do you want your own business?'"
Elgin is speaking from experience. At the beginning of his career, he bought a video rental business and soon discovered that the day-to-day operations of a retail outlet didn't suit him. "If I had worked with a consultant before I went into the video business, that person would have described exactly how a retail business works, and I would have said, 'No thanks, that's not for me!' You spend Thanksgiving out decorating stores for Christmas."
Elgin reassessed the situation and bought a restaurant franchise with a business partner. "My partner was an operations person who loved to make pizza. All I had to do was invest the money. I wouldn't do well as an operator in a business that requires working evenings and weekends," he says.
In his work at FranChoice, Elgin provides a valuable service to franchisers and franchisees alike. FranChoice pre-screens candidates and works closely with them, to make certain that franchising a business model, as well as the specific business they are considering, will be a successful match. Elgin reports that a typical franchiser is contacted by up to 200 different people before finding one that is a suitable candidate, as very few have the needed skills or finances. However, candidates that complete FranChoice's screening process have a one in five chance of continuing the process to purchase and run a franchise.
"The biggest advantage of using a screening service is that it saves time and effort and eliminates the possibility of making a big mistake in choosing the wrong company, and our service is free," Elgin says. "We work with people who often haven't thought carefully about what they want." Our people ask about their interests, skill sets and other characteristics like what hours they prefer to work and how they feel about managing employees. We gather data on 15 or 16 major characteristic points and put together a model that spells out what they are looking for in a business." The companies that Elgin represents are pre-screened as well, known for high returns and positive business relationships.
"Just because you like the product or the service doesn't mean it will match up with you as an owner," Elgin says. "When I started as a franchisee in the video business, I was so naïve I thought that because I knew how to plug a video into a VCR that running the business would be that simple. But it was a retail business with additional demands. Later I learned that in most businesses the franchisee has nothing to do with delivering the product or the service. They are in the back working on books or marketing." Elgin recommends that buyers not go after a particular business because they like the product or service offered. "Your focus will be on the franchisee role and specifically what tasks you will be performing to run the business. If you own a shoe shop you are not going to be fitting shoes on people's feet."
Business Leadership Needed
What is the biggest role of the franchise business owner? "Franchisers are looking for two things: capital and management talent," Elgin says. Owners run an operation working within predetermined systems, and must have excellent decision-making and leadership skills. "As a franchise owner, you are generally in charge of everything-personnel, advertising, marketing, ordering customer relations, management, accounting, bookkeeping, administration, sales, etc," Haskell states.
The key to an owner's success in a service-based business frequently has little to do with the owner's own ability to deliver that service. Instead, making a profit may depend more on the owner's sales ability-the practice of regularly and aggressively going out into the marketplace to seek out new customers. The skills required vary from business to business, and many franchises have systems in place to train owners. Owners will find themselves involved in projects as varied as negotiating lease agreements, buying liability insurance, and working with vendors.
Once you've determined that you have the management skills and the desire to make a serious commitment to business ownership, financing is the next consideration. There are over 5,000 different types of opportunities to choose from and the financial requirements vary widely as well. Some businesses require as little as $5,000 to begin, while others require over a million dollars. FranChoice recommends, "From a practical standpoint, you must have a net worth of at least id="mce_marker"00,000 of which at least $25,000 to $30,000 is readily available for investment in a business. If you do not have these minimums, you will find your options so limited that franchising is probably not a viable option for you."
Financing can be a simple process where paperwork is approved in a couple of days, or it can take much longer if for example, the project requires that a new building be built. "It's easier for vets to get financing than any other group," Elgin says. "A number of programs have preferential treatment for vets, including the SBA. Some groups will waive part of the franchise fees once a veteran finds a company they like." The Small Business administration also offers special programs for minorities and women.
Each franchise has different net worth and liquid capital requirements, and some offer their own financing packages. For instance, Great Clips offers third party financing with loan amounts for up to 75 percent of the total cost of opening and operating a location. Franchise companies provide prospective
buyers with three figures: the franchise fee, a one-time fee paid to become a franchisee, the initial investment, and the total investment. Make certain you ask existing franchisees operating in market areas comparable to yours about their experience in the total cost of doing business, Haskell recommends.
Franchise fees generally have no correlation to the total investment required. For example the franchise fee for a Taco Bell is about $35,000, but the total investment may run as high as a million. Molly Maids offers a proven service-based business with much less investment: a franchise fee of id="mce_marker"4,500 and a total investment of about $30,000.
"A good rule of thumb is that it will invariably cost you more than your best estimate," Haskell states. Consider all kinds of sources for funding your start-up, and don't underestimate the ability of your family to participate. You might consider adding a partner who could contribute cash, a home equity loan, insurance policy cash values, or non-IRA stocks and bonds.
Buying a franchise is a decision and commitment of great magnitude. Franchising offers relative safety to the owner, in that the product, services, marketing strategy and profitability of the company is already demonstrated. However, "while the success rate of franchises is remarkable and is inversely proportional to the failure rate of independently begun small business, the fact remains that some franchises will fail," states Franchise Solutions. One way to avoid this is to use a screening service that is familiar with franchise opportunities in your area, and can help you focus in on your personal strengths and weaknesses. Then, plan to conduct your own intensive research investigation. Meet for coffee with other franchise owners and ask questions of owners, managers and employees. Visit their businesses and observe first-hand what day-to-day operations are like. Then, ask even more questions.
A Successful African American Vet
An intensely driven and motivated individual, Jackson downplays his ambition when he jokes and says, "I didn't want to end up on the creek bank. I knew that would get boring after a while." Jackson began researching franchise prospects while stationed with the Air Force in Crete, and initially decided to buy a different store within an extremely well-known national chain. "I wanted a business where I could be in total control," he says. "Where I could answer to myself. After being in the Air Force for twenty years, I was a manager. I had been a commander and had managed 1,200 men and women."
However, when Jackson began speaking to franchisees, managers and employees of the business he intended to buy, he discovered disgruntled employees brimming over with negative information. "Listen," they told me, "I would not buy one of these things. It was obvious that I needed to look someplace else, but I was still determined," he says.
Then, Jackson's sister saw an article in the paper about a seminar describing up and coming franchises in the U.S., and Jackson eventually contacted Great Clips for Hair. Although he knew little about Great Clips or the hair care industry, the company wooed Jackson with impressive presentations and first class treatment, flying from Minneapolis to speak with Jackson in Phoenix. "We talked about what they had to offer and they were excited and energetic, and they were really interested in me." Jackson was especially impressed as an African American, as the chain did not have any other Black franchisees at the time.
Jackson continued his homework and spoke to Great Clips franchisees all over the U.S., who responded to him with tremendous enthusiasm. A Denver owner flew to Phoenix to speak to Jackson in person. "He had ten to twelve shops at the time. I was impressed," Jackson says. "I mean, talk about getting excited!"
Hard Work with a Big Pay-Off
"Franchising is not easy at all," Jackson says. Additionally, the transition from military to civilian life was challenging. "When I first walked in with my staff I almost expected them to salute me," he says, laughing. "I told myself I'd better get that mentality out of my mind right quick." Business was slow for the first two years, but as Great Clips built name recognition, Jackson's shop took off. "I kept opening more shops and I have eight shops now, and am opening a ninth one in three months," he says. "I have three others coming up in a year." Jackson's stores are located in Phoenix, Glendale, Casa Grande, and Goodyear Arizona.
Jackson says that he has been extremely happy in his career with Great Clips. "It's always been my philosophy that a lot of hard work and energy will allow anyone to succeed," he says. "It doesn't bother me to put in fourteen hour days seven days a week-because it's mine." Jackson says that the support he has received from the Great Clips organization has been excellent. He advises other prospective franchise buyers to scrutinize the upper management they will work with. "Its extremely important," Jackson says. "I can call the Great Clips management and they will get back with me in a very short time. They are always there for me."
Businessman and Humanitarian
Jackson also has a master's degree in counseling psychology and has worked on a doctorate in clinical psychology. He works in the morning from a home office to oversee his Great Clips stores, and then works late into the night helping indigent children with emotional problems. Jackson feels his work with children is especially critical because of the need for disadvantaged children of color to have positive male role models. When asked how he keeps up the demanding pace, he replies, "I can't afford to allow myself to get burned out, for the kids and for my shops. Being successful is very important to me."
Jackson says that he wouldn't open a "mom and pop" type small business because the failure rate is dramatically high compared to franchise businesses. Jackson advises others to make education a number one priority, and says, "Franchising is a superb opportunity to be self-sufficient and to be rewarded emotionally and financially."