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Running Start

There's no easy button for starting a franchise, but there are dozens of programs to lend a helping hand.
January 1, 2008
URL: http://www.entrepreneur.com/article/187680

Buying a franchise is often touted as the easier path to business ownership. But the road to becoming an entrepreneur will never be risk-free. There's no such thing as a free lunch, and even buying a franchise requires some kind of seed capital. In addition, making the transition from employee to franchisee--and more important, going from having a secure paycheck to none at all--can be daunting. Finally, acquiring the business knowledge necessary to get up and running takes time, even if the franchisor provides training.

But don't let the obstacles turn you away. Franchisors are offering a variety of programs that are specifically designed to help you over the hurdles and give you a leg up on franchise ownership. So if you're a veteran, a minority or just someone looking for a break, read on. You might be surprised by what we've uncovered.

VetFran
You won't have to look far to find a franchise that's participating in the Veterans Transition Franchise Initiative (known as VetFran). Launched by the International Franchise Association after the Gulf War, the program was designed to ease veterans' entry into business owner-ship by offering them some form of financial assistance. "Some systems may reduce the initial franchise fee, some systems may decide not to assess a training fee, some systems may provide temporary initial adjustment on the royalty payment," explains Matt Shay, president of the IFA. Now, with nearly 1,000 franchises launched by veterans and franchisors eager to get involved, VetFran is accomplishing exactly what it set out to do.

"The opportunity to give a veteran not just a unique business opportunity, but a bit of a kick-start into a new business is something we think is a great idea," says James Alisch, director of franchise development for 1-800-Got-Junk?, a full-service junk removal franchise that has participated in VetFran for more than two years. The program is working out well for 1-800-Got-Junk?--it has already brought nine qualified franchisees to the table. Says Alisch, "[Veterans] have experience, a fairly strong track record of dedication and integrity, and the ability to commit to delivering what they say they will."

Among these franchisees are Jeff Drawe, 31, and Mike Stoll, 37. Both helicopter pilots, they met while they were deployed in Iraq in 2004. While they were in Dubai later that year, the pair discussed their mutual dream of opening a business. Together, they purchased seven 1-800-Got-Junk? territories, which secured them half the city of Jacksonville, Florida, last August.

The friends were granted an initial franchise fee reduction through a process that Drawe describes as seamless. "Once we were offered the franchise, the price reduction--which amounted to almost $12,000 based on the number of territories we had--was already included in our franchise price," he says.

Drawe credits the VetFran program with giving veterans the confidence to pave their own paths after leaving the military. "A lot of people are very scared of leaving that structure, that steady paycheck, that job security," he says. "Thank God VetFran is there, because it helps lure those budding entrepreneurs with financial benefits."

Neither Drawe nor Stoll is quite yet retired from the military. Drawe leaves the service in March of next year, and Stoll still has more than four years left, but they have grand plans for the future, which is sure to involve many more business ventures. "We've set up a series of goals for ourselves," says Stoll. "Our short-term goal is to be the No. 1 franchise within a year of opening."

If a junk removal service doesn't appeal to you, almost 300 other franchises stand ready to offer assistance to veterans. You can find a complete listing of VetFran participants at the IFA's website, franchise.org.

Programs for Minorities
Veterans aren't the only ones benefiting from special programs. Historically, minorities have had a difficult time gaining access to capital and are therefore the main focus of some franchisors' recruitment efforts. In January 2006, Domino's Pizza introduced a new program, Delivering the Dream, designed to help its existing minority general managers become franchisees. "Over our 46-year history, our model has been an internally franchised model, and our whole [goal] is to [help] great people in our system become franchisees," says Mike Mettler, director of franchise recruitment and sales for Domino's Pizza. "One of the biggest hurdles [for franchisees] is the financial hurdle, so to improve that model and continue to support and develop diverse franchisees, we launched the Delivering the Dream program."

The pizza franchise has reserved up to $1 million for the program and caps each award at $250,000. While the support is typically in the form of a loan guarantee, a candidate can also receive grants. Domino's Pizza distributed three awards last year, and at press time it was on track to meet its 2007 goal of five.

Jessy Watson started out with Domino's Pizza in 1999, delivering pizzas part time. He worked his way up to general manager, and in 2005 he purchased his first store in La Grande, Oregon, with co-owners, Dennis Poe Jr., 30, and Rebecca Johnston, 53. A year later, Watson, who is black, received a $180,000 loan guarantee through the Delivering the Dream program and was able to open a second Oregon location. Having a big name backing him made all the difference. It took approximately eight months of major hassle and stress before he could secure the money to purchase the first store. The second time around, Watson started building a new store in June 2006 and had it open by September of the same year. Says Watson, "To be honest, [GE Capital] funded me much quicker just because they knew I had a loan guarantee." Watson, 36, projects combined 2008 sales for his two stores to reach between $800,000 and $1 million, and he dreams of owning at least 20 stores one day.

Watson believes the Delivering the Dream program offers many who are still Domino's Pizza general managers a light at the end of the tunnel. "[It] gives some people a real opportunity to reach for their dreams and strive for something better," he says. "It's a matter of Domino's reaching out and saying, 'We actually care; we want to see you do better; we want to see you obtain your goals, because if you can achieve your goals, that's helping us achieve ours.'"

In other efforts, Focus Brands, the franchisor and operator of Carvel, Cinnabon, Moe's Southwest Grill and Schlotzsky's, recently implemented its Growth Through Diversity program in an effort to make the company's constituent base of franchisees mirror its diverse clientele. Focus Brands offers minority franchisees a $10,000 discount on the franchise fee, a reimbursement of $10,000 once the store opens and an additional $10,000 reimbursement after the first year, as long as development milestones, operational standards and marketing expenditure requirements are met. It's currently perfecting the program in the Atlanta market and is finalizing a deal with its first Growth Through Diversity franchisee.

Both Domino's Pizza and Focus Brands are members of MinorityFran. Similar to the VetFran program, MinorityFran is also an IFA initiative that is focused on recruiting minorities and providing them with support and assistance. While MinorityFran franchises are not required to offer any kind of financial assistance, some of them do. The program currently has more than 200 members.

Managing Partner

Matt Friedman and Adam Scott founded Wing Zone, a Buffalo wings takeout and delivery franchise, when they were only 21 and 19, respectively. Now they want to offer opportunities to others by removing some of the hurdles. "The reality in this day and age is that you need [at least] $100,000 net worth," says Friedman. "It's so difficult for someone young to start a business."

So in 2006, Friedman and Scott established their Managing Partner program for individuals who have at least three years of restaurant management experience and $15,000. The managing partners are put in charge of a company-owned location and earn 25 percent of the profit. Once they've built enough capital to cover 50 percent of the store's purchase price, it becomes theirs--they officially become a franchisee, and corporate finances the remaining 50 percent over a set period of time. "We want to get them to a point in roughly two to three years where they could become an owner," says Friedman. Currently, the program has opportunities available in Atlanta; Charleston, South Carolina; Miami; and Tampa, Florida.

Friedman and Scott aren't the only ones dishing out the opportunities. Noble Benefield, an experienced restaurant executive and advocate for urban development programs, became a Wing Zone franchisee almost two years ago. But even before then, he dreamed of providing opportunities to others. Benefield's goals are similar to those of the Managing Partner program: He aims to help others obtain franchises of their own. To do that, he plans to select protégés, teach them the ropes, help them develop plans to establish and build equity, and eventually allow them to acquire his store. Benefield, 58, just selected his first protégé for his store in Lithonia, Georgia, and is setting his sights on opening another store. He'd like to replicate the model at least five times. Says Benefield, "If I can achieve that and get those running well and successful in themselves, I would consider this particular piece of my life a success."

Flex-Start
For many, there is a necessary waiting period between the time they leave their full-time job and when they get their business off the ground and turning a profit. And that alone can be enough to squash their dreams of setting out on their own.

Three years ago, Spring-Green Lawn Care, a lawn- and tree-care service franchise, took advantage of the fact that its business is a seasonal one and launched a program that is known today as Flex-Start. Under this program, franchisees who come in midseason are able to start part time, with a commitment to go full time by January 1 of the following year. In this way, franchisees can keep their full-time jobs while learning the ropes of the franchise and building up a client base on the side. The results of the program are impressive. According to James Young, president of Spring-Green Lawn Care, franchisees under the Flex-Start program enjoy first-year revenue that is an average of 30 percent higher than that of franchisees not in the program. In addition, more than half the franchises that opened in 2007 started under the program. Says Young, "When you think of that [transition] from the corporate environment to entrepreneurship, this really is a unique bridge, [so Flex-Start] has been well-received."

"The Flex-Start program was a tremendous help for us, because it let us crawl before we walked and before we had to run," says Matt Holker, 53, who bought his franchise in August 2006 with his son Greg, 23. Matt, who worked in the construction and housing industry, was able to keep his job while learning the franchise's computer system, making sales calls and growing his customer base to roughly 50 clients by fall 2006. By the next spring, business was booming, and the following fall, they had obtained more than 350 clients. His son Luke, 27, has joined the company part time and has a full-time job as well. Says Matt, "Had we not had some kind of adjustment to get to this point, quite honestly, we would have fallen on our faces."

Union Programs
Even laid-off workers in the auto industry have programs geared toward helping them become franchisees. In 2006, Jack Butorac, CEO and president of Marco's Franchising LLC, the franchisor for Marco's Pizza in Toledo, Ohio, established a partnership with United Auto Workers to lend a helping hand to those who had suffered from the industry's major cutbacks. "These are individuals who have given 110 percent," says Butorac. "I felt it was an opportunity to give back or give them an opportunity to succeed and control their own destiny."

Marco's Franchising waives costs for store construction management and reduces the franchise fee by up to $5,000 if relocation expenses are incurred. In addition, the company has pledged to give 20 percent of all royalty fees collected from franchisees in the program to the UAW's training and re-education fund.