From the April 1998 issue of Entrepreneur

What goes around comes around. Ed and Linda Moran found a way to use that old adage to make money and build their reputation in the Cleveland suburb where they run their DiscGoRound new- and used-CD franchise.

High school students from Brooklyn, Ohio, and other area schools raise money collecting people's used CDs by going door-to-door and setting up drop boxes. The kids take the tunes into DiscGoRound, where they're paid around $2 per CD. DiscGoRound then sells the used CDs to its many local customers.

"It creates good will with the people in the neighborhood," says Ed. The only downside for the store is the possibility it will end up with "junk." But Moran says talking to fund-raisers beforehand about what can and can't be used solves the problem and creates enough good karma to "go round."

Training Wheels

Making owners out of managers.

By Elaine W. Teague

For Newport Beach, California-based Econo Lube 'N Tune, rewarding longtime managers of company-owned stores with franchise ownership is the name of the game. Econo Lube's Dealer Development Program is based on the company's belief that successful business managers will make successful business owners.

This gutsy move is making a difference in the lives of some key former employees. Case in point: Independence, Missouri, franchisees Calvin and Patricia McMechan. For five years before becoming owners of two Econo Lube franchises, the McMechans put in more than 60 hours a week as Econo Lube store managers.

The couple's dedication and hard work paid off. The Dealer Development Program enabled them to become franchise owners with no investment. No capital investment, that is. Calvin is modest about the investment of time and talent that caught the eye of his franchisor. "I try to give it all I can," he says.

Qualifying for the program isn't easy. Selection is based on proven track records in customer service and sales. Six months of intensive training help smooth the transition to ownership.

Not surprisingly, the McMechans, 18-year veterans of the automotive repair industry, have a philosophy similar to Econo Lube's. "[Econo Lube] financed everything up front. It didn't cost us a cent," says Calvin. "[Now,] we try to take care of our employees."

One Small Step

Franchising targets Small Town USA.

By Elaine W. Teague

Less is definitely more--at least for the new Small Town Development Program at Taco John's International Inc. Franchising mainly in big cities since 1969, Taco John's is now capitalizing on a niche often ignored by well-established quick-serve chains: Small Town USA.

Targeting towns with populations of 5,000 to 10,000, the Cheyenne, Wyoming-based franchisor is offering new franchisees a small-sized store with a full-sized menu--and a significant draw: startup costs roughly 40 percent lower than a traditional site.

The first franchisee in the program is Paul Sullivan of St. Joseph, Minnesota, who opened his doors last summer. He was given latitude by Taco John's to operate dual businesses side by side. "There's a single door," explains Sullivan, "with a video store on the left and Taco John's on the right."

Serving townsfolk numbering 4,000 and a college population of roughly the same size, Sullivan's dual-concept store also draws commuters from nearby Highway 75. It's an ideal location, one Sullivan had his eye on for four years before it became available.

"[The area has] been served by a plethora of pizza places, but nothing else really," says Sullivan. "I'm only the second fast-food business to move into the area."

Taco John's hopes to see 10 to 15 small-town openings this year.

Pizza The Pie

Hungry? Don't go near this Web site.

By Jesse Hertstein

Order pizza online? Request franchise information via e-mail? Do both at the same site? Any company that plans to compete on a large scale is now expected to have its own Web site--and franchisors are no exception. Following these new rules of competition is Louisville, Kentucky-based Papa John's International Inc. We decided to take a look at the company's Web site. Here's what we uncovered:

At http://www.papajohns.com, you can find out just about anything you'd want to know about the pizza franchise. There's a menu that lists ingredients; an order form where participating restaurants allow you to order online; background information on the company; franchise information, including a Potential Franchisee Questionnaire; an employment listing; a store locator and even a financial report of Papa John's 1997 performance.

The links are well-organized and cross-referenced in a way that makes it easy to find what you're looking for. The graphics make for a colorful, eye-pleasing site that shouldn't be viewed on an empty stomach.

Chuck Wagon

Customers give this service two thumbs up.

By Natasha Emmons

When The Pet Pantry delivery van rumbles down the street, it draws neighborhood dogs who recognize the little white van that brings food and treats. Pet owners looking for convenience are creating a demand for the service--and those who can handle the adoration and like working from home are answering the call in droves.

Pet Pantry franchisees deliver fresh bins of vitamin-fortified pet food to their customers' doors, then retrieve the bin when they make their next delivery. "It's kind of like the old milkman," says Kenneth Wright, The Pet Pantry International Inc.'s chairman and CEO.

This Minden, Nevada-based company has expanded rapidly since it formed in 1995. There are about 50 U.S. franchises, and Wright hopes to have 110 U.S. franchises and two outside the United States--in Canada and South Africa--up and running by the end of the year.

Protected territories are offered by ZIP code, and initial start-up costs run about $40,000 (not including the cost of a delivery van). Franchisees handle administration at home, but warehouse space of about 700 square feet is needed for food storage.

If you're an old dog and think you can't learn new tricks, The Pet Pantry gives new franchisees six weeks of advice over the phone; a five-day training program at its Nevada headquarters; and ongoing support, including a minimum of two visits per year from a management consultant.

Peak Performers

Franchisors pull ahead in the race for wealth creation.

By Keasha Dumas

Think the most profitable businesses are listed in the Standard & Poor's (S&P) 500 index? Not necessarily, according to Stephen Spinelli Jr., a professor at the Center for Entrepreneurial Studies at Babson College in Wellesley, Massachusetts, and director of the college's Franchise Institute. Spinelli studied the quarterly performance of 83 public franchises over a 10-year period and found they returned an average of 12.8 percent more to investors than companies in the S&P 500.

In addition to financial return, the study measured risk and found the level of risk in franchise and S&P 500 stocks was similar. "With the same risk profile, [franchises got] a better return. That's exciting investment news," says Spinelli.

The study's implications may be of particular interest to entrepreneurs considering franchising. "It gives us some indication of what kind of company they ought to go with," says Spinelli, who is also a co-founder of Houston-based Jiffy Lube International Inc.

According to Spinelli, successful franchisors in the study shared the following characteristics:

  • They had a base of company-owned stores in addition to franchise stores.
  • They charged lower up-front fees but higher royalties.
  • They spent more money on advertising.

Contact Sources

Center for Entrepreneurial Studies, fax: (781) 239-4798, spinelli@babson.edu

DiscGoRound, 4746 Ridge Rd., Brooklyn, OH 44144, fax: (216) 398-0621

Econo Lube 'N Tune, (816) 966-0997

Pet Pantry International Inc., (800) 381-7387; fax: (702) 783-9513