Breaking The Mold

Savvier than ever, today's franchisees are blazing new trails.

Magazine Contributor

May 1, 1997 13 min read

This story appears in the May 1997 issue of Entrepreneur. Subscribe »

Bob Drake had attained most of the goals he'd set in his life. He had worked for years as a director of quality for General Motors, served as vice president for Nissan, completed a prestigious fellowship program
at the Stanford Graduate School of Business, and was hired as president of a large automobile aftermarket manufacturer. But something was missing. "I was burnt out [on corporate life]," says Drake. "After a while, you just want to get out there and try it for yourself."

The final frontier for Drake? Franchising. In December 1993, Drake opened the doors to his Remedy Intelligent Staffing franchise and closed the doors on his corporate life forever.

Drake represents the new breed of franchisee: educated and experienced--we're talking cream of the crop. While in the past, franchisees tended to be working-class people with limited business experience, the white-collar group that's buying into franchising today is very well-informed, says Jerry Wilkerson, founder of Franchise Recruiters Ltd., an executive search firm in Crete, Illinois. "They know what it takes to make a business tick. They've already had a good dose of business experience, so they understand consumerism, marketing and advertising, and what service means," he says. "They know how to manage people, how to motivate them. They have a good [grasp] on where the market is moving, and they're not afraid of taking a step forward. In franchising, those are points that usually can't be taught."

"Many [new] franchisees have had impressive careers in corporate America," adds Gerry Rhydderch, Remedy Temp Inc.'s vice president of franchise development. "We have MBAs, PhDs, CPAs, you name it. And there's a common vein among all of them: They didn't want to be downsized. In the old days, employees were valued assets. Unfortunately, it appears in today's world, employees are there when they're needed, and when they are not needed, they're gone. The franchisees who join our system are very desirous of having more control in their own lives."

Often, the corporate world's loss is the franchisor's gain. "These are incredibly talented people, and that helps us," notes Rhydderch, who says the typical Remedy franchisee is now in his or her mid-40s to early 50s, and more than 90 percent are college graduates. "If you look at a roster of our franchisees, these are people we never could have afforded to hire. They were six-figure income earners who looked at franchising as a vehicle to earn that much without the threat of losing their jobs."

Drake agrees franchising is a comfortable fit--the perfect blend for his extensive experience and his thirst for freedom. "You see a lot of good and bad management styles over the years [as an executive] and see a lot of things you'd like to do," he says. "As a franchisee, you know that what you're doing every day--the decisions you make, how you treat your staff, how you treat your clients--has a direct impact on [your business's] bottom line. You see the results. You set up your business plan and watch the company grow, and see the things you've done right and wrong. I've seen many of the issues that come up here in my former corporate life, so I have a better idea of how to react to them."

Drake isn't the only one benefiting from this keen insight. Robert Kushell, a franchise consultant in Pittsboro, North Carolina, and one of the first proponents of franchise advisory councils, has always thought the idea of getting input from franchisees made sense. But Kushell struggled for years before franchisors agreed with him. Today, however, franchisors are realizing the pricelessness of feedback from their business-savvy franchisees.

"[New franchisees] are changing the system for the better," says Rhydderch, "and making the [entire franchise] more valuable."

Different Strokes

As these new, improved franchisees storm franchising's gates, the entire industry seems to be getting a whole lot smarter. "The reason fast food has dominated the industry for so many years is food lends itself so well to franchising, but in the last 10 years, the service side of franchising has really blossomed," says Wilkerson.

"When we got started in franchising about 20 years ago, the vast majority of companies we worked with were either in food service or traditional consumer service-oriented businesses," says Mark Siebert, president of Olympia Fields, Illinois-based Francorp Inc., a management consulting firm specializing in franchise development. "One of the major trends we've seen over the last 20 years is a horizontal application of franchising to industries we never would have considered before. We're seeing franchises in everything from diamond jewelry retailing to financial services to training for Fortune 500 executives."

Business-to-business services are especially hot. "In the old days, [Remedy employees] used to make sales calls to businesses," says Rhydderch. "Today, it's much more of a business call, where we're sitting down with the decision makers of a corporation and helping them strategically staff their businesses. We find our franchisees who come from high-end positions in corporate America feel more comfortable with this consultative approach than with a sales approach."

The new franchisees differ from the old in another very tangible way--they're computer literate. "They've been working with computers for years and embrace computers a lot more willingly than franchisees did in the past," says Wilkerson.

Considering the savvy of new franchisees, technology is the next logical injection to franchising, both as an upgrade to existing systems and as the basis of future business offerings. "Knowledge is essential to franchising, and the technological revolution has forced us to reconsider how we do business. Franchisors have contemplated this just as much as any major corporation's marketing arm," says Wilkerson. "Technology provides changes by the hour nowadays, and franchising will be a big part of that."

Fresh Faces

As franchisors rush to meet this demand for cutting-edge concepts, franchising has lost whatever stigma it once had and is attracting attention from an entirely new audience--one that considers franchising among the most exciting marketing concepts the business world has to offer. "[In the old days,] people coming out of college or midlevel management didn't understand or trust franchising," says Wilkerson. "That's completely changed. A lot of people who 10 years ago would have frowned at the potential of franchising, who just didn't think it was for them, are now looking at it as a very sound idea."

As Wilkerson sees it, franchising is attracting two major new markets besides corporate refugees. One is comprised of young, educated people choosing to completely bypass the Fortune 500 career in favor of franchising. "Franchisors have traditionally not looked to people in their mid-20s to early 30s as potential franchisees, but these are the people who are knocking on the door more often today," says Wilkerson. "They are better educated than we were at their age, they have better capital formation in their portfolios--usually by virtue of their families--and they're trying to get into business while avoiding the corporate hierarchy."

Another recent addition to the franchisee family is the senior market--those aged 55 and older who are at the threshold of retirement. "They're at a stage in life when their children are grown, their investments are taken care of, but they don't want to quit working yet," says Wilkerson. "They see franchising as an opportunity to do something different."

These two groups of franchisees will continue to reshape franchising in the next millennium, just as former corporate executives have done this decade. Getting into franchising at a younger age will enable many more to become multiunit franchisees and to use their experience to leap from one industry to another. Meanwhile, older franchisees will stabilize franchising as they lean toward the sure bets. The balance, experts believe, will be good for franchising as a whole.

"It may take 10 years, but we're moving into another golden age like we experienced from 1965 to 1975," says Robert Purvin, chairman of the board of trustees of the American Association of Franchisees and Dealers. "Franchising really demonstrated at that time what it is capable of, and some really superior performers took off. We will see that again. Companies will flourish as franchisors treat franchisees with respect and fairness, and with a degree of democracy. Then franchising will deliver most, if not all, of its promise."

Meeting Of The Minds

Rhydderch lists four attributes of his ideal franchisee: a desire to build a business, a demonstrated work ethic, financial capability and a willingness to follow a system. Considering the profile of today's franchisees, he acknowledges he has a much better chance of finding this person now than he did 10 or 20 years ago.

Drake says the benefits fall both ways. "As a small-business owner, I couldn't afford to do the things [the franchisor] does to stay competitive," he says. "There are approximately 150 staffing agencies in my area, and I need something to show I'm different. Remedy has backed me up with good marketing and research and development that keeps me on the leading edge."

This healthy connection is enough to make even a jaded, seen-it-all franchise veteran excited. "When both parties feel they're getting fulfilled, when franchisors and franchisees are pulling together, it's marvelous," says Kushell. "Franchising, when it works, is like nothing else."

Undoubtedly, more people will discover the key to this ultimate fulfillment. In fact, Drake, who once seemed to have it all, has only one regret about leaving his prestigious corporate career for franchising: "I wish I had made the decision 20 years earlier."

New Order

By Holly Celeste Fick

Franchising is not an industry; it's a growth strategy, Rhonda Sanderson is quick to point out. Sanderson, president of Sanderson & Associates, a Highland Park, Illinois, public relations agency specializing in franchising, has seen that growth strategy do some growing of its own in the past 20 years.

"There are a lot of paybacks now for mistakes that were made then," says Sanderson. "[Franchising has] become more of a partnership. There is a greater appreciation for the role franchisees play."

Attitudes have changed just as much for those outside franchising. "This franchisor is going to be as big as McDonald's" was Sanderson's pitch back then. "But just franchising isn't news anymore," says Sanderson, who notes that today, press coverage tends to spotlight individual franchisees.

And those franchisees are a new breed as well. Most are already successful businesspeople before they get into franchising. "These people already know what's going on," says Sanderson.

This new group of franchisees has spurred franchisors to reevaluate franchisor-franchisee relations. Sanderson recalls Sam Ross, founder of hair-cutting franchise Fantastic Sam's, describing franchisees of the 1960s: "They're just like teenagers." Fortunately, she says, franchising has evolved. "One of the most important changes in franchising is a better understanding by franchisors of what franchisees [have to offer]," she says.

As for the future, Sanderson isn't hedging her bets. "Franchising will always survive," she says. "Here's why: If I had someone I could always turn to to ask `What new technology is out there for me? What's the best way to do this?' I would easily pay them 5 percent of my earnings."

Back To Basics

The more franchising changes, the more it remains the same. Just ask Eugene O. Getchell, a franchise consultant in Lexington, Kentucky, who has observed the evolution of franchising since 1968, when he joined the company that later franchised Long John Silver's.

"The relationship in the beginning was more of a strict relationship, with franchisors taking a very hard line on franchise relations," says Getchell. And understandably so. "The franchise concept demands that you stick to strict discipline," he says. "That's what has made franchising so valuable."

But those relationships have developed along with the concept, and franchisors, says Getchell, have grown to see the relationship as more reciprocal.

What does he see for the future? The explosion of global opportunities seems to have franchisors eager--perhaps overeager--to establish franchises overseas.

"The global market is a romantic thing; it can turn your head," says Getchell. "We're certainly headed for the global marketplace, and franchising is and will be a big part of that market; however, franchisors need to do their homework in this country first. There's a time to go [overseas], and that's when you have all your bases covered in the United States."

Whether they go abroad or stay at home, wise franchisors will learn from the past, says Getchell. He believes the most important concepts in franchising haven't changed in 20 years: fairness and common sense. "We all rode our own little dinghies to get into this," says Getchell. "Now we've got to row the big boat together."

Legal Eagle

Andrew a. caffey, a specialist in franchise and business opportunity law in Bethesda, Maryland, was initiated into franchising during what one might call "peacetime."

"[I got into the industry] right at the end of the push to regulate franchising," Caffey recalls. "New legislation dropped dramatically at the end of the '70s."

Caffey has watched franchise legislation ebb and flow ever since, from the institution of the Federal Trade Commission's (FTC) Franchise Rule in 1979 to the Reagan years that liberalized the laws as they applied to franchisors.

"The longer list," asserts Caffey, "is what hasn't changed. The process of advising franchisors hasn't changed; they have the same list of legal concerns." Franchisors also still face what Caffey calls a "strong barrier to entry" in the form of various expenses, from legal obligations to franchise development to annual CPA audits.

The future, of course, is still uncertain, but Caffey sees some likely changes on the horizon. "Some form of mandated earnings claims is one possibility," he notes. "The FTC may also fine-tune the definition and regulation of business opportunities."

Caffey still marvels at the wide spectrum of people he deals with on a daily basis. "The variety is spectacular," he says. "What surprises me is that, 20 years later, I still get questions I've never heard before."