How Former Execs Find Success as Franchisees
Learn how to invest your IRA or 401k into a franchise penalty-free. ($50k min)
When Karen Brinker was a marketing executive at the Playtex Corp. in Westport, Conn., she had a staff of Harvard M.B.A.s. When she opened her AlphaGraphics franchise in Greenwich, Conn., her first three employees were $8 to $10 hourly workers. "You have to have an entirely different mindset to hire, train, develop and keep that kind of group," she says.
Ms. Brinker developed her new mindset on the fly. She had received one-and-a-half year's severance from Playtex in 1989 and thought she wanted to buy an existing manufacturing company. But when her business broker showed her an independent printing company "light bulbs went off," she says. "This was a business that combined manufacturing [printed material], plus advertising and marketing management," all functions that matched her experience. "I then saw an ad for AlphaGraphics in The Wall Street Journal and realized this franchise had figured it all out."
Even though Ms. Brinker and her three hourly workers had no previous printing experience, her franchise took in $1 million in sales during her first two years and has been growing ever since. "I turned 45 the week I opened," she says. "I only wish I'd had the courage to do this 20 years earlier." Ms. Brinker says she owes her success to her involvement in the local business community. "As soon as I opened my doors, I spent three to four hours a day, five days a week making sales calls and joining groups like the local chamber of commerce," she says.
AlphaGraphics, based in Salt Lake City, may have helped more executives make the transition into franchising than any other system, says Keith Gerson, the franchiser's vice president of global development. "We have 326 franchises in 20 countries," Mr. Gerson says, "and 92% of them are run by corporate refugees." Since the current round of corporate downsizings began in 2001, leads for new franchisees are up 200%, he says, many of them former executives.
Former executives make good franchisees, Mr. Gerson says, because they are intelligent, are able to follow a corporate structure, and have experience in managing people and finances. "They've developed practical experience in how a business functions," he says. "Now all they have to do is reset the paradigm and put that experience to work for themselves."
But not all executives are cut out to be AlphaGraphics franchisees. Almost one-fourth of serious applicants are turned down, Mr. Gerson says. AlphaGraphics has minimum financial requirements -- $125,000 in liquid cash, plus the ability to borrow about $220,000 to $375,000 to lease and equip a store and provide working capital for the first year. And it requires applicants to have some sales and marketing experience.
Other reasons for rejection are more subtle. "Some executives are not roll-up-your-sleeves people," Mr. Gerson says, "and are not willing to do the hard work required." Hard work comes with the territory. In 1994, Dick Moran left his job as an executive with Rockwell Graphics Systems Division of Rockwell International in Westmont, Ill., to run an AlphaGraphics franchise in downtown Chicago. "I was putting in 70- to 80-hour weeks and getting down on my knees to pull staples out of the carpet. My family and friends thought I was nuts to trade big bucks in a corporation to do this," Mr. Moran says.
He was willing to work so hard, he says, because he solicited business from the banks, law firms and financial-services companies surrounding his print shop. "My reputation was on the line," he says. "I wanted to give them the best possible service." His wife, son and daughter now help him run his original store, plus a second AlphaGraphics in the city's trendy West Loop neighborhood. And Mr. Moran, who has an M.B.A., says he's earning "considerably more money" as a franchisee than he did as an executive.
Some executives "come into a franchise system like King Kong and want to do everything their way," says Jim Hewell, a former vice president of the consumer-products division of Texas Instruments in Dallas. "If you try to do things your way instead of following the franchiser's rules, that's a formula for failure," he says. Mr. Hewell bought an AlphaGraphics franchise in Carrollton, Texas, after his job was eliminated in the mid-1990s.
Established franchises try to flush out the King Kong candidates during sessions called Discovery Days, when prospective franchisees travel to company headquarters to meet franchise executives. "If we agree that you won't opt to follow our system, we'll say you're not a good fit and suggest you look somewhere else," Mr. Gerson says.
Flexible Formats Available
That somewhere else can be a new franchise company. Howard Bassuk, chief executive officer of FranNet, a Carlsbad, Calif., company that matches up franchisees and franchisers, says that while older franchises can be strict about following their formula, new ones "can be very loose, and may say, 'Go ahead, try that.' Some former executives need that degree of flexibility."
FranNet associates in 60 offices around the country help each candidate assess his or her level of risk, skill sets, goals and income needs. "Do you enjoy helping people," Mr. Bassuk says, "or would you rather sell a service that someone else delivers? What do you want your life to be like? No one ever assumes that several people can all do the same job just as well. Why should they all succeed running the same franchise?"
Executives with strong selling and managerial skills can succeed at running almost any type of service franchise, Mr. Bassuk asserts, from a tutoring center to a hair salon. Steve Sesterhenn, 45, of Lake Bluff, Ill., for example, is a medical doctor, an M.B.A., and a Mr. Handyman franchisee. Dr. Sesterhenn had been senior medical director of the managed-care division of Searle Pharmaceutical in Skokie, Ill., but turned to franchising when his employer asked him to move to New Jersey.
"I'd been working with a FranNet representative," Dr. Sesterhenn says, "when I went to my sister's house for Thanksgiving in 2000. She had a crack in her front stoop that no one wanted to fix because it was such a small job. Who doesn't have something around the house that needs fixing? That's when I decided to buy a home-repair franchise."
Dr. Sesterhenn selected Mr. Handyman, in Ann Arbor, Mich., because it's a new franchise "and I can help the concept grow," he says. Right now, however, he's more concerned about growing his own business. "We opened on Sept. 12," he says, "and ramp up has been slow. We still can't afford a dispatcher, so my wife and I answer the phone and schedule appointments for our two service technicians. I'm still doing some medical consulting, but building your own business is an entirely different environment."
Many skills do travel from one environment to the next. Mr. Hewell, an M.B.A. and a certified public accountant, says his biggest surprise was "how much I learned working for Texas Instruments about having a work ethic and how to treat customers. I'm still using the same concepts in my franchise."
Copyright © 2003 Dow Jones & Company, Inc. All Rights Reserved