Franchises

Franchising's 4 Hottest Categories Offer Small Costs and Big Payoffs

Franchising's 4 Hottest Categories Offer Small Costs and Big Payoffs
Image credit: i9 Sports
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This story appears in the August 2016 issue of Entrepreneur. Subscribe »

Micah and Tom Nisley wanted to start their own business but didn’t want to go into debt to pay for it. The couple were in their 20s and were working in restaurants -- and socking away as much as they could. Then they quit their jobs to figure out what business they wanted to start. “We knew that if we put in the work, the returns would come,” Micah says. But despite their savings, the barrier to entry just seemed too high. Then they discovered low-cost franchises.

Even a decade or two ago, people like the Nisleys may not have been so lucky. Traditionally, most promising franchises carried a high buy-in fee and required a ton of overhead. Some were more affordable to launch, sure, but they typically required years of grunt work without much growth potential.

Today, that’s all changed. A new breed of low-cost franchises requires minimal investments, because most of the expensive parts of running a business have been stripped away. Call centers and marketing are centralized and automated. Physical stores or offices aren’t necessary. Some even allow their franchisees to run their businesses from a laptop or mobile phone.

The Nisleys had many options, but they were most excited by i9 Sports, which organizes and operates youth sports leagues. The franchise fee was $32,000, which was within their budget. They signed up and moved from Austin, Tex., to the Dallas-Fort Worth area, which was i9’s most desirable territory available. Six years later, they own two i9 territories, run sports leagues for 5,500 kids and employ two full-time employees and a part-time marketing person.

Stories like this one are becoming common. As the cost of franchising continues to drop, motivated and cash-strapped entrepreneurs are paying their dues with sweat instead. Here are four of the year’s hottest franchise categories that do more with less. 

Commercial cleaning

Buy-in: $950–$50K

Cleaning franchises are considered the mother of the low-cost model. They’ve been at it for decades, long before it became popular, and have endured the hiccups other concepts have learned from. But in that time, they also came to embrace a system you won’t find in many other franchises: It’s called a two-tier system (also known as a master system), and it provides opportunities for franchisees on big and small budgets.

Here’s how it works: A master franchisee buys a territory (which costs primo dollars), then signs up unit franchisees (which cost far less) within that territory. Most of the time, the master franchisee markets the system and signs on new customers and clients, and then farms out the actual jobs to the unit franchisees. Smaller owners can work their way up and eventually build large businesses. “That’s the great thing about it,” says Scott Thompson, vice president of franchise development at Jan-Pro Cleaning Systems. “There are no limits to where someone can go through sweat equity.”

Jan-Pro is one of the oldest and largest cleaning franchises in the world, with 8,000 unit franchisees in 14 countries. Many of Jan-Pro’s unit franchisees are first-generation Americans or lower-income citizens looking to build a better life, Thompson says. “They come from all walks of life. In Washington state we have a high proportion of Russian immigrants who are franchisees, and we have a lot of Polish ones in Chicago,” he says. “With us, they make the jump from hourly jobs to something that can support their families.”

Once someone buys in as a master franchise, they’re in a position to handle seriously large business. Atlanta, Oklahoma City and Tulsa master franchisee Brad Rush started his Jan-Pro business with members of his family in 2001 and has grown his system’s annual revenues to $24 million. He loves helping his unit franchisees grow. One of them, he says, began her business with a $950 down payment. Now she does $400,000 in business and still has room to bring in more. “If we are good at what we do, we will impact the lives of others,” Rush says. “We’re trying to teach them to be business owners. That’s one steadfast truth: The more we can do and give to our franchise owners, the better our business does on the back end.”

Home inspection services

Buy-in: $23K–$55K

Almost every time a real estate deal goes down, an inspector is called to check out the place -- looking for structural problems, electrical hazards and other important details, right down to how well the dishwasher runs. And as the real estate market has recovered nationwide, that’s meant a lot more demand for inspectors … and home inspection franchises.

Getting into the business is relatively straightforward. Most states have strict licensing requirements and stringent training and exams, so once a franchisee goes through that grind, they have a strong grasp of their new business. An inspection franchise often doesn’t require an actual office, so owners can launch their business from home and add employees at their own pace (if they choose to do so at all). Equipment such as ladders, tape measures and electrical-wiring testers are all inexpensive.

“I quickly learned to do inspections, and I was able to grow pretty rapidly,” says Bob McDonough, who started in 2008 after leaving his job as a regional facilities manager with Target and buying a National Property Inspectors (NPI) franchise in Atlanta. (NPI has 230 units across the U.S., with room to expand to 400.) It would seem his timing was awful; 2008, after all, was the beginning of the real estate industry’s collapse. But McDonough uncovered a way to thrive: An influx of foreign investors descended on the Atlanta market to snap up foreclosed properties, and they needed an inspector on the ground to be their eyes and ears. He has only grown from there -- turning an initial $25,000 investment into a thriving business with seven inspectors on payroll and projected revenues of more than $1.2 million this year.

“When I first started, I just expected to be a one-man show making enough to replace my previous income, and that was it,” he says. “Now I employ people who make a nice income and provide me with a nice income as well.” 

Business Coaching and Services

Buy-in: $25K–$100K

Unlike most franchise categories, this one isn’t open to all. A business coach needs a background in, well, running a company or a large division of a corporation. Or they need a résumé that will make other business owners trust them. But the actual business of business coaching can look very different, depending on the franchise.

CEO Focus is a roving operation. “This is meant to be a mobile business, so franchisees do put more miles on their cars and minutes on their cellphones,” says founder Jim Muehlhausen. The service works like this: A franchisee brings together a group of clients for once-a-month, three-hour group sessions, where they all talk through their opportunities and challenges. These are usually executives from midsize companies with revenues between $1 million and $20 million and five to 50 employees, and they pay a monthly fee to participate. (The meetings rotate among their offices.) The franchisee also has monthly one-on-one meetings with each client.

The operation is lean by design. Once the franchise fee is paid, Muehlhausen says, “the only cost to franchisees is marketing and acquiring new members. Most of our 32 franchisees don’t have an office, and most tend to remain a one-person operation.”

That’s not the case with Sunbelt Business Brokers, where franchisees help small-business owners buy a business or sell their company -- typically by helping them streamline their books and operations, and then acting as a broker to negotiate the sale. Clients can be anyone from manufacturers to espresso bars. The business usually starts out as a one-person shop, but president Brian Knoderer says that some of the franchisees begin adding more sales brokers as soon as they can to grow their business. The typical unit has four to six, though he says some larger franchisees have 30 or more brokers closing deals. 

“Selling a business is one of the biggest decisions an entrepreneur will ever make,” Knoderer says. “I think our franchisees like the idea of working with business owners and buyers and like the reward of helping someone with such a huge event in their life. Quite frankly, it’s a fun business.” And once a franchisee has a strong stable of brokers, he says, they often step back and take a more managerial role.

Children’s sports leagues

Buy-in: $23K–$70K

This category never runs out of new customers: Kids love running around, and parents love when their kids can burn off energy. But the category is also experiencing a huge boom, because the concept is so affordable and fun to operate.

i9 Sports, the franchise the Nisleys bought into, sets up six kinds of leagues: baseball, basketball, cheerleading, flag football, lacrosse and soccer. (They were chosen based on which have the highest participation levels and easy access to facilities.) And franchisees can get up and running fast. “From the time they sign the papers and buy a franchise, a franchisee could go through training in the next 60 days,” says CEO Brian Sanders. “Our franchisees can usually open within six to nine months, instead of waiting a year or a year and a half, like other franchise models.”

That’s because without a bricks-and-mortar spot or sports fields to operate -- events take place at public or rented fields -- franchisees can begin marketing and finding staff and referees almost immediately after going through training. “We have very little inventory that a franchisee needs to worry about. They’re not stuck with a warehouse full of burger wrappers and Dixie cups, just enough game balls, jerseys and flag-football belts for the season ahead,” Sanders says.

The Nisleys found that i9’s formula worked perfectly. “You can be profitable pretty quickly,” Micah says. “And that still allows us to prioritize our decisions based on what is most beneficial to the kids in the league and to their parents, and what is profitable for us.”   

Edition: December 2016

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