Five Franchising Strategies

Absentee Ownership & Conversion Franchises

Be an Absentee Investor. For the right kind of business, with the right employees running that business, it is entirely possible--though rare--to own a franchise business and not be directly involved in its management. Rare, I think, because it is hard enough to own and operate a successful small business even when you're on the floor every day.

What type of business lends itself to absentee ownership? First, it must be a business that doesn't have valuable inventory. I once had a senior executive of a muffler franchisor tell me his shops couldn't be run by employee managers because too much of the inventory would leave at the end of the workday. Only an owner on the premises is sufficiently motivated to prevent that from happening.

Second, the business must have sufficient margins to be profitable after the expense of having a reliable manager. So many franchise businesses have razor-thin margins that allow for the owner to take out not much more than a modest salary. So the key question then becomes: What drops to the bottom line for the owner?

Service businesses with training programs that can support an employee manager may meet these qualifications. It would be a mistake to assume that any franchise can prosper with an uninvolved owner, but with the right program and a handpicked management team, it can work.

Buy Into a Conversion Franchise. A conversion franchise allows an existing independent business to affiliate with a national brand. The classic conversion program is Century 21 Real Estate Corp., which converts independent real estate brokers and allows them the benefits of a strong brand affiliation while allowing them to continue using their individual identification. Affiliation programs have been launched by a variety of professional service providers, such as handymen, home-repair programs and hotel chains.

Conversion franchise programs offer an attractive balance of brand identification and buying power. If you're operating an independent business and long for the competitive advantages of being tied in to a national reservations system or receiving local leads generated by a national or regional advertising campaign, you may want to consider joining a franchise affiliation program in your business category.

Can you use your current business name, or do you have to completely identify with the franchisor's brand? That depends entirely on the system. The real estate affiliation programs often split the identification between the national brand and the name of the broker/franchisee. This is the approach taken by one of the newest real estate franchise systems in the market, Envirian LLC, in Reston, Virginia. Lee Konowe, founder of Envirian, doesn't insist on rigid uniformity with the solitary display of the Envirian name. "We are flexible on how the Envirian name is combined with the broker's name or the town name, or both," says Konowe. "We want our brokers to capture the value they've built in their names, so they can maximize their marketing power as members of the Envirian system."

Often, the fees paid for an affiliation program are considerably lower than those of traditional franchise systems, reflecting the fact that the franchisee is an experienced business owner and needs less training and less support than someone new to the business.

Franchising doesn't exist in a single investing dimension; it has developed in ways that allow virtually any level of investor in any business situation to participate. The lesson is clear: Keep looking until you find an investment that's well-structured for your interests and needs, and you'll probably find it in the franchise arena.

Andrew A. Caffey is a practicing franchise attorney in the Washington, DC, area; an internationally recognized specialist in franchise and business opportunity law; and former general counsel of the International Franchise Association.

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