Spin Cycle

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

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This article was originally published in the April 1998 print edition of Entrepreneur with the headline: Spin Cycle.

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