Breaking The Mold
David Gard straightens the bow tie on his black tux and checks his shining reflection in his dress shoes. He double-checks his inventory of CDs and equipment and heads out to today's gig. The reception hall where he sets up is bedecked with crepe-paper bells, pastel streamers and a "Just Married" banner.
Gard ruminates on the perfect song to get the guests dancing. No matter how good the food is or how many tiers the wedding cake has, it's his responsibility to make this wedding reception a party. As a DJ, Gard wears many hats. Emcee. Crowd-reader. Request-taker. Line-dance teacher. Franchisee.
Franchisee? No--that couldn't be. Franchisees are middle-aged management types in dress shirts and ties behind the counter at McDonald's. They fill out endless reams of paperwork and display sale signs only--and we mean only--when the franchisor says so. Right? Wrong.
There's a common sentiment in the franchise community: If a business can succeed as a single unit, it can probably be franchised. Which means franchising has moved far beyond fast food into such diverse areas as deejaying and dog washing. The International Franchise Association (IFA) identifies 70 categories in franchising and estimates franchising will bring $1 trillion into the U.S. economy next year.
With such diversity, franchising isn't just follow-the-leader anymore. Pick an interest, decide what level of participation you want (and need) from your franchise system, and there's probably a franchise that can offer you the satisfaction of owning your own business, plus the benefits of experience, pooled resources and a well-known name.
Franchising has two separate definitions: one legal, one business. According to Washington, DC, franchise attorney Andrew A. Caffey, a franchise is recognized legally if three elements are present in a business transaction: the licensing of a trademark, substantial assistance with the business's operations, and the payment of a franchise fee.
"The business definition is, in many ways, a more important and accurate description," says Caffey. "The business definition is a continuing, almost symbiotic, relationship between a franchisor, who owns intellectual property and know-how, and a franchisee, who invests money in developing a business using that intellectual property and experience. The franchisee can use a proven program and thereby reduce risk when opening a business. In exchange, the franchisee pays the franchisor a [franchise fee and] royalty."
What's In A Name?
The success of a franchise is sometimes all in the name, or at least what that name connotes to customers. Franchise and royalty fees may purchase an entire business system, but customers usually walk in because of the name above the door. "It's a tremendous advantage to open a business with a recognizable trademark that creates almost instant foot traffic," says Caffey.
When Beverly and Greg McNutt relocated to a small suburb outside of Philadelphia, Beverly quickly tired of her 150-mile commute and rediscovered her dream of being an entrepreneur. According to Beverly, 38, the couple had always wanted to open their own store that sold frozen desserts such as custard, gelati, Italian ice and the like. "Then we saw Rita's Water Ice start to capitalize on the Philadelphia marketplace, and as we moved further out into the suburbs, we felt the marketplace would support a Rita's," she says. "We knew the brand was being built and felt we could really get a jump on it. You can grow much quicker with a franchise." Since opening their Collegeville, Pennsylvania, store in 1995, the McNutts have opened two more Rita's Water Ice locations in the area and plan to open a fourth this year.
Guided by his love of computers, John Shelburne chose Computer Renaissance based on interviews with franchisees and the system's national presence. "I know my limitations; I needed assistance in some areas. A franchise provides that assistance," says Shelburne, 36, who owns stores in Augusta, Georgia, and Columbia, South Carolina. "I didn't want to own a mom-and-pop shop where I not only owned the business, but it owned me. I wanted an asset that I could sell at some point."
What A System!
But with thousands of franchises available, the strength of the system itself--not just the name--is often the selling point. When Gard, a former employee at DJ franchisor Complete Music, got the chance to purchase the system's Portland, Oregon, territory, he knew he couldn't pass up the opportunity. And though many people don't recognize the Complete Music name nor realize that it's a franchise, Gard says the franchise has helped legitimize the industry.
"Maybe the name is not recognized like `Burger King,' but when you're supplied with employee-training materials, marketing materials and quality equipment, [you can get established] in your market almost automatically," says Gard.
Laund-UR-Mutt is a relatively new franchise, but franchisee Bernie Sturr had confidence in the system's potential. Already the owner of an independent dog-grooming shop, Sturr and his wife purchased their Boulder, Colorado, self-service dog-wash franchise from the previous owners. "[The advantage of the franchise] is the system for the dog-wash itself," says Sturr, 33. "[It] has specific plans for the tubs, plumbing, floors and walls, and how everything is set up."
One of the biggest issues for a franchisee is control. You've invested thousands of dollars to purchase a business, yet in a sense, you still have a boss to report to--a boss who could release you from your contract if you don't meet the franchise standards. "The negatives in franchising are the flip sides of the positives," says Caffey. "The No. 1 negative is coming to grips with the controls exercised by the franchisor. [But] there are business reasons for that, with many advantages. [Controls have] allowed a system like McDonald's to achieve something of a marketing miracle by being able to deliver a complicated product like the Big Mac, which tastes the same anywhere in the world. They've achieved that through imposing tight product and operational specifications."
When brothers Aaron, Michael and Simon Serruya, founders of Yogen FrÃ¼z Worldwide Inc., look for franchisees, they don't search for mirror images of their own fiercely independent natures, but rather for self-starting entrepreneurs who can also follow directions. "Franchising is for the person who wants to be his or her own boss, but at the same time needs to be guided," says Aaron. "If you want to reinvent the wheel, go do that. But if you want to follow what's working, buy a franchise."
But is there any creativity in franchising? What input do you have into the business? It depends on the type of franchise and your definition of creative input. Franchises like Rita's Water Ice and Yogen FrÃ¼z won't negotiate store layouts, products and management specifications, but franchisees can still infuse their personalities into their stores.
For franchisee Beverly McNutt, it's all in the service. "We get many compliments on how we train our employees, and how polite they are. Even though we're in a franchise, the franchise is second to me. These are my stores. This is how I want them run. My goal is to have the best Rita's store in the chain."
Some franchises require more creativity just because of the nature of the business. "I have to come up with unique ways of marketing myself using the methods taught by Complete Music," says Gard. "I have to do a Portland-style show, not a Texas-style show. That's where creative freedom comes in."
Laund-UR-Mutt franchisee Bernie Sturr is in a unique ground-floor position: Not only does he have the freedom to make merchandise decisions, but those decisions could even have a direct impact on the system as a whole. "We totally remodeled the retail area," says Sturr. "We brought in five lines of all-natural dog food not carried anywhere else in the Boulder area, and started offering grooming services one day a week right off the bat. [Franchisor] Scott Southwourth has seen what we've done with revenues in 18 months--we've tripled the business. That's given him ideas for new store layouts."
Is Franchising For You?
In the end, you have to assess the level of entrepreneurial independence you require to be satisfied. Do you want to be your own boss, yet lessen the risks associated with starting your own business? Do you want the benefits of a national brand name and large-scale advertising? Do you know your strengths but question your abilities on some of the finer points--dealing with suppliers or marketing, for example? Most of all, are you willing to give up some control to gain these benefits? Once you answer those questions and research franchise opportunities, you'll know whether or not a franchise is in your future.
Don't even think about buying a franchise until checking out--and thoroughly comprehending--that hefty disclosure document, the Uniform Franchise Offering Circular (UFOC).
This weighty document must be given to prospective franchisees within 10 days after the first personal meeting, or 10 days before any agreement is signed or money changes hands (whichever is earlier).
The UFOC describes the company; the investment; any litigation or bankruptcy history of the franchisor; the trademark, products and advertising program; your and the franchisor's contractual obligations; and more.
Using the UFOC's list of current and former franchisees, call a random sample of both types (don't rely on a few carefully selected names the franchisor gives you). Visit franchisees at their locations and find out what a typical day is like, how much money they make and whether the franchisor provides adequate support. You can even volunteer to work at a franchise for free for a few days to get a feel for the day-to-day life you'd live as a franchisee.
Financing is any start-up's biggest challenge, and it's no different for franchisees. The good news: Some franchisors offer direct financing to help with start-up costs. (This may be in the form of equipment, real estate or inventory financing).
Many franchisors have preferred relationships with banks and commercial lending companies that are familiar with franchisees' needs. If they don't, you can often find financing by approaching banks that have made loans to other franchisees in the system. Talk to other franchisees and see how they financed their businesses.
Once you've found a lender, you'll need to provide the same information and follow the same steps as you would with any type of business loan.
Make The Call
The Federal Trade Commission (FTC) provides a free package of information about the FTC Franchise and Business Opportunity Rule, which regulates the sale of franchise and business opportunities. Write to: Public Reference Branch, Federal Trade Commission, Washington, DC 20580; call (202) 326-8128; or visit http://www.ftc.gov.
You've decided buying a franchise is right for you. Now, how do you pick the right franchise? Investigate the industries that interest you the most; then assess your area of interest to see if there's a market for that type of business.
Have franchise companies in those industries send more information. But don't rely just on these materials; head to the library or go online for magazine and newspaper articles about each company you're considering. Are the articles positive? Does the company seem to be well-managed and growing?
Check with the Better Business Bureau and consumer or franchise regulators in your state to see if there are any complaints against the company or if it has been involved in lawsuits involving fraud or violation of Federal Trade Commission regulations. If the company is registered with Dun & Bradstreet, ask for a D&B report (800-234-3867), which details the company's financial standing, payment promptness and more. Also refer to Entrepreneur magazine's Annual Franchise 500Â®, the best and most comprehensive rating of franchises in the world, available at https://www.entrepreneur.com.
Lastly, if you live in one of the 14 states (California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, North Dakota, New York, Rhode Island, South Dakota, Virginia, Washington and Wisconsin) that regulate franchises, contact the state franchise authority to see if the company complies with registration requirements.
Complete Music, (800) 843-3866, http://www.cmusic.com
Computer Renaissance, (706) 854-9474, email@example.com
Laund-UR-Mutt, 637 S. Broadway, Ste. P, Boulder, CO 80303, (303) 543-9592
Rita's Water Ice, (800) 677-RITA
Yogen FrÃ¼z Worldwide Inc., fax: (905) 479-5235, http://www.yogenfruz.com