The Wide World of Franchisees
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It doesn't take much more than a look around at the countless Subway and Cold Stone Creamery franchises dotting America's landscape to recognize the dominant role that franchises play in our society. The brands are tried and true, but who are the faces behind these franchises? Who are the people purchasing these businesses and running them day-to-day? We surveyed the franchisors who submitted applications for this year's Franchise 500®, asking them to identify their primary franchise buyers. Their responses overwhelmingly pointed to four major buyer categories: second-career executives, young entrepreneurs, women, and minorities. After speaking with people directly involved in the franchise industry, we discovered how these four dynamic groups are forging their paths in franchising.
Second Time Around
Downsized, laid off or just plain tired and fed up-whether due to economic swings or a general disenchantment with the corporate world-more people are choosing to go into business for themselves. An overwhelming 77 percent of the franchisors we surveyed indicated that second-career executives are among the primary buyers of their franchises today.
That was the case for Dennis Huff, 50, and Ed Flanders, 46. After extensive careers involving executive positions in sales and marketing and engineering, respectively, they decided to take the plunge and abandon their high positions on the corporate ladder to become their own bosses. They looked into various franchises, ultimately deciding that, due to the strong demand for pet services and the rapid growth of the industry, a pet-grooming business was for them. They opened an Aussie Pet Mobile franchise in November 2005 in Irvine, California, and without ever washing a single dog themselves but managing employees who do, are already among the top Aussie Pet Mobile franchisees in the nation, growing their business to eight vans. Huff and Flanders' impressive success is due in part to their ability to grasp the bigger picture and enter the franchise with aggressive plans for growth. From their previous experiences, they also understood the importance of a solid business structure and were prepared for the initial costs and the time it would take to start making money-a factor Huff says many franchisees underestimate.
According to David Louy, executive vice president of franchise sales at Aussie Pet Mobile, second-career executives have been among the company's primary franchise buyers since the mobile pet-grooming business started actively franchising in the U.S. in 2000. According to Louy, it's the franchise's business model that former corporate executives find especially appealing. "There's no receivables, there's no real estate, there are few employees, it's a repeat business, very scalable, not subject to economic swings and there's not a lot of competition out there," he says. "People who have been in the corporate world for a period of time recognize these as things that have value."
Louy predicts that this group of franchisees will continue to be primary buyers, and he can already see where some of them are leaving their marks. "The stronger franchisees are starting to buy out others," says Louy. "It's kind of like the corporate world all over again, but on a personal level."
The transition from executive to business owner did require some adjustments for Huff and Flanders, though. The duo no longer has access to an HR department, a legal department, or an operations and finance team. "Your administrative assistant-that right-hand person-is so important. They set up dates, do your expenses, keep you organized," says Huff. "You don't really appreciate that until you don't have that service anymore."
Young and Inspired
Young entrepreneurs have drive, energy and enthusiasm on their side. Perhaps that's the reason 55 percent of the franchisors surveyed indicated that entrepreneurs under the age of 35 are among their primary buyers.
However, access to capital is a common problem for young entrepreneurs. "[My friends and I] always said if we had money, we could make a million dollars, but it's hard getting that first million to make more millions," says Louie LaForteza, 31, who secured financial assistance from his mother to purchase his Springfield, Oregon, Bad Ass Coffee franchise in late 2004. Choosing a drive-thru over a traditional coffeehouse because of the significantly lower investment required, LaForteza plans to open at least four more drive-thrus in the area and eventually purchase a walk-in location.
Obstacles such as obtaining financing may be slowing young entrepreneurs down, but they're certainly not stopping them. These entrepreneurs have plenty of motivation pushing them through the startup process. "In the past two years, we have sold more franchises to [this younger demographic] than ever before," says Harold Hill, president and CEO of Bad Ass Coffee. "These younger people, whose parents came up through the corporate world, are hungry to be on their own, to be self-sustaining, to make their own decisions, to take pride in what they're doing and to own something. They want to say 'I've worked hard for this, and it's mine.'"
So why are franchisors giving a chance to the younger crowd even when they lack money and sometimes experience? "They haven't been clouded by years and years [in the] corporate environment, and they don't understand that they can't do something," says Mel Luigs, president and CEO of MARS International Inc., which specializes in automotive appearance reconditioning. "They learn our system; they train very well and then go out and execute our system." In an effort to continue attracting younger franchisees, MARS International has established a partnership with a finance company to reduce the challenge of gaining access to financing.
Thomas Flaherty, vice president of global business development for Papa John's International Inc., is quick to point out that founder John Schnatter was only 23 when he started the pizza franchise. If anything, he believes younger franchisees are armed with an essential weapon: energy. "Our franchise system and the stores themselves are [fast-paced] environments," says Flaherty. "You need a lot of energy."
A Woman's Touch
According to the Center for Women's Business Research, nearly 10.4 million U.S. firms are owned by women. And of the franchisors we surveyed, 32 per-cent reported that women are among their primary franchise buyers. "There are more women who are economically independent and [who are] the primary income-earners in their households," explains John Reynolds, president of the International Franchise Association Educational Foundation, which promotes franchising through research and education. "And as a result, they are much more likely to be interested in starting and owning their own businesses." In all franchising categories-from the automotive industry to the printer cartridge world-women are making their move.
John Dring, COO of Cartridge World, which sells, remanufactures and refills printer cartridges, estimates that the training sessions for new franchisees are currently made up of the same number of males and females. This is up from the 70/30 male-to-female ratio of about two years ago. So what's driving this increase? Says Dring, "Women have played a major role in different levels of running businesses-probably more so in the past 10 or 15 years-and they have done extremely well in entrepreneurship."
Karrie Holland opened her first Cartridge World franchise in Davenport, Iowa, in 2004. She has since opened three additional locations and is working toward opening one or two more as well as possibly moving into other markets. For Holland, a former college professor, owning a Cartridge World franchise is far from glamorous-it's downright dirty. But the franchise offered an appealing business model and opportunity.
Holland has found that being female has actually given her an advantage in that she's better able to identify with and speak to her target customer: other women. Understanding that women are the primary decision-makers in many households, Holland goes out of her way to reach out to her female customer base. She chooses locations that are convenient for women, supports local parks and recreation programs, helps schools with fundraisers, and works with the local waste commission to reuse empty cartridges. "I try to capitalize on the [environmental] portion of my business because it's [important] to women," says Holland.
Holland, 37, suggests joining networking groups for women business owners and not letting gender be an issue. She says, "I have a daughter, and I feel like I'm [being] a positive role model and showing her that women can be strong and run organizations."
In our exclusive survey, 18 percent of franchisors said minorities are among their primary franchise buyers. This number will continue to grow as more franchisors realize the importance of having certain minority groups onboard as franchisees. "The demographics are changing in this country, and they're changing faster in the urban markets than the rest of the country," says Reynolds. "Franchise companies are figuring it out. They want the loyalty of those customers and to have their brands identified with those customers. So the people who work in their restaurants, in their tax preparation offices, in their packing and mailing services, and on their lawn services have to reflect that customer base."
According to the most recent data from the U.S. Census Bureau (from 2002), the number of black-owned businesses has grown 45 percent,
Hispanic-owned firms have increased by 31 percent, and Asian-owned businesses are up approximately 24 percent. New government figures are expected soon showing even more growth. In the hotel franchising industry, members of the Asian American Hotel Owners Association own an estimated $29.9 billion in franchise properties in the U.S., while other minority groups, with the help of joint efforts, are picking up speed.
For InterContinental Hotels Group-which owns brands such as Crowne Plaza, Holiday Inn Hotels and Resorts, and Candlewood Suites-actively seeking black and Hispanic franchisees is an important element of business strategy. "We recognize there's an opportunity for us to grow along dimensions we haven't pursued," says Roslyn Neal Dickerson, chief diversity officer. The company sends out development teams nationwide to establish relationships with high-net-worth minority franchisees of other systems such as Burger King and McDonald's and to inform them of the opportunities available in hotel franchising. It has also established an incentive program to provide minorities with financial or operational assistance.
It was this effort that encouraged Michael V. Roberts and his brother, Steven, 58 and 54, respectively, to move forward with InterContinental Hotels Group in 2005 and open a Crowne Plaza in Atlanta. They currently own eight hotels and have always made it a point to select franchises that are proactively developing diversity programs, as they're personally dedicated to increasing the percentage of black hotel ownership.
The focus and energy is there, and minorities will be making an impact. "We're on a growth wave right now," says Dickerson. "I wholly anticipate [that] African-Americans and Hispanics [will] contribute to the growth of the industry. If you follow the economic trends, these populations are going to continue to accumulate wealth. It's going to stretch across all of franchising." Reynolds has noticed increasing activity from the Hispanic population in the fast-food sector as well as an increasing interest from black Americans with MBAs who are starting to recognize franchises as viable business opportunities.
Reynolds predicts that the growth witnessed so far is only the tip of the iceberg. As franchisors start to fully grasp the importance of embracing minorities and women, they will put strategic plans in place, develop financing programs with lenders and make the extra effort to reach out to these important growing groups of franchisees.
On a New Mission
As a sergeant in a finance unit in Iraq, Alina Gutierrez's job was to transport money to smaller military units. But after seven years in the National Guard and a year in Iraq, she left military life and followed another life dream: opening a business.
In June 2006, she purchased a Glass Doctor franchise, a mobile glass repair and replacement service, and was pleasantly surprised to find that she qualified for a 10 percent discount on the franchise fee due to her veteran status. "It costs a lot of money to start a business, so any discount was a plus," says Gutierrez, 26. "It was about recognition. They were saying 'You were fighting for us, and we'd like to give something back to you.'"
Gutierrez is just one of a growing number of veterans who are finding assistance through the Veterans Transition Franchise Initiative, or VetFran, a program established by the Inter-national Franchise Association in 1991 to honor and help those who have served the country. At press time, more than 200 franchises were participating in the program and more than 600 franchise businesses had been sold to veterans in 48 states. For more information about VetFran, visit the IFA's website at www.franchise.org.