Benefits of a Franchise Versus a Solo Operation
Learn how to invest your IRA or 401k into a franchise penalty-free. ($50k min)
Part I in a two-part series on the pros and cons of franchising.
A slogan of the International Franchise Association is "Be in business for yourself, not by yourself." The Washington-based organization cites the following as advantages of franchising:
- The ability to rely on the experience of the franchiser and its operating system
- Advertising efficiencies
- Buying efficiencies
- Continuing support
But is franchising always easier, more efficient and more profitable than running an independent business? StartupJournal.com spoke to current and former franchisees of two concepts about these points -- and received starkly different opinions. The franchise system that works well for one person, it seems, can fail another.
� Randy Drake, 39, of Elk Rapids, Mich., spent 10 years struggling to operate R. Drake Plumbing on his own. In May, he became a franchisee of Mr. Rooter, a 193-unit franchise owned by The Dwyer Group Inc. of Waco, Texas, and his business has surged.
� Terry Schuler, 40, says he lost more than $100,000 while a Mr. Rooter franchisee from June 2001 to March 2005 and is doing better running USA Plumbing in South Elgin, Ill., on his own.
� Cynthia Barnes, 46, a Houston certified public accountant purchased two Baskin-Robbins ice-cream stores in 2002 to diversify her portfolio and says she's satisfied with her experience. Baskin-Robbins, with 2,600 U.S. locations, is owned by Dunkin' Brands Inc., a division of Pernod Ricard SA, a large Paris-based liquor company, which has the franchise division up for sale.
� Boyd Harris, 42, of Laredo, Texas, owned a Baskin-Robbins franchise in Austin, Texas, from 1993 to 2001, then sold it to buy his parents' Baskin-Robbins franchise in Laredo. But he took down the Baskin-Robbins signs and opened as an independent ice-cream store, joining an ice-cream-buying cooperative, KaleidoScoops Inc. of Wheaton, Ill.
Here's what the four said about relying on the experience of the franchiser and its system and franchisee training, and the bottom line for prospective franchisees. Spokesmen for Mr. Rooter and Baskin-Robbins declined to comment on their remarks. ( Part II in this series examines advertising and buying efficiencies and franchisee support.)
1. On the ability to rely on the experience of the franchiser and its operating system:
Mr. Drake: "During my 10 years of operating solo, I had trouble setting rates. If other plumbers charged $40 an hour, I'd charge $30. Even when I expanded and added full-time employees, I never cleared more than $30,000 a year. Before I took on my first customers as a Mr. Rooter franchisee, I spent hours on the phone with Dwyer Group accountants, who figured out all my expenses, then helped me set flat rates for my services. By this time next year, I think I'll be making a six-figure income."
Mr. Schuler: "I'm a licensed plumber who joined Mr. Rooter, because I didn't know how to operate a business, but every time I called them for advice, they never got back to me. I would have been better off starting my own company four years ago."
Ms. Barnes: "When I first opened the doors to my brand new store, I had no idea how to put together a grand opening. My Baskin-Robbins field-service manager stepped up and assisted me. I never expected him to be next to me all day, greeting customers and scooping ice cream. My stores are profitable -- I'm covering all expenses, including debt service, and paying myself a salary. I'm still glad I bought the franchises and might buy more, as long as the return on investment is there."
Mr. Harris: "I felt stifled by having to adhere to Baskin-Robbins's operating system. I went into ice cream to have my own business, but I still felt like an employee. While a franchisee, we had to do everything in a set style. Now I'm designing my own sundaes, like the Mosh Pit, with eight scoops of ice cream, brownies, pound cake, bananas, two waffle bowls and four toppings. I opened a second store in a former drive-up shaved-ice stand and I operate an 'Ice Cream School Bus' that we take to football games and special events. Baskin-Robbins would never have allowed any of that."
- Bottom line: Buying a franchise means working within an operating system. A prospective franchisee must decide whether it's worth trading off personal control for consistency and an operating system.
2. On training:
Mr. Drake: "I still remember my first day as an independent plumber. It was new construction, and I didn't know how to pull a permit for the job. Finally, an inspector showed up and told me who to call. Before opening our Mr. Rooter franchise, my wife, Kris, and I spent a week in classes at Dwyer Group headquarters in Waco. Then a franchise-service manager spent three days in our Elk Rapids office going over everything again."
Mr. Schuler: "They get you to Texas for training and tell you how great things will be and how much help they'll provide. But once they get your check, everything changes." [The franchise fee, which covers the cost of training, for Mr. Rooter is $22,000.]
Ms. Barnes: "The $30,000 franchise fee I paid for each Baskin-Robbins franchise covered the cost of Baskin's 30-day training program at Ice Cream University in Burbank, Calif. I paid travel and lodging expenses for myself and two managers. It was costly."
Mr. Harris: "KaleidoScoops is a cooperative with 84 members. We paid $2,500 to join and $600 annual dues to continue. Training doesn't cost anything, because a few of us have volunteered to train newcomers in our stores. They follow me around for about two weeks, until they've learned as much as they want."
- Bottom line: Extensive training is an advantage of franchising, but it can be expensive. Independent-business owners can seek low or no-cost training from equipment vendors, professional or trade associations and owners of similar businesses in other markets. Prospective franchisees should ask existing franchisees whether they felt their training was worth the time and money.
Read Part II of this series, on franchise advertising and buying efficiencies and continuing support.
For reprints and licensing questions, click here.