Will You Be Happy As a Franchisee?
Most franchise owners say they're satisfied, despite not being able to meet financial expectations. Find out why they stick with the investment.
A franchise is often sold as a business in a box. You pay a startup fee and royalties for access to a supposedly proven brand and product, and after a few weeks of training, you're off and running toward success and profits. For some corporate refugees, buying a franchise can seem as secure as taking another corporate job, but with the potential to make more money and not be hounded by a boss. Sounds simple, no?
Well, not quite. A 2002 survey of franchisees, conducted by Frank Wadsworth, a professor at Indiana University Southeast, suggests that a franchisee's relationships with both his business and his franchiser are anything but simple or sure.
For starters, the 262 people who answered the Indiana Franchise Research Center survey were mostly satisfied with their franchise system and brand, but that's in spite of the fact that most aren't doing as well financially as they would like. Fifty-four percent rated their franchise systems excellent or above average (20% rated it below average or poor) and 67% say their franchise has an excellent brand. But, even though almost two-thirds have been profitable at some point, only 44% say they've seen a good return on their investment.
How can people who aren't happy with the financial outcome of their business still be more or less satisfied with the business itself? Dr. Wadsworth and others say that given the amount of time, money and emotional energy people invest in not just their business outlets, but the entire franchise system as well, they're eager to think highly of the company they're representing. "If you've put all this money into a franchise, you want to think well of the decision you've made," Dr. Wadsworth notes.
A Big Investment
Troy Christmas, who owns a Money Mailer LLC franchise in Berkeley, Calif., points out that, at least at the outset, franchisees are very dependent on their franchiser. (Money Mailer, of Garden Grove, Calif., sends envelopes of coupons from local businesses to homeowners.)
"When you're starting out, you're clueless, and all you know is keep your nose to the grindstone and do as the system tells you because it worked for other people," he says. Mr. Christmas reports that he's happy with Money Mailer, and he has received extra training and consulting when he's needed them. Even so, he sees how franchisers can use that dependence to their advantage.
"What I see happens is, the franchiser keeps checking in to ask how things are going and if they can help you out in any way. You feel like they're supporting you, even if there isn't anything they can actually do to help you," he says. "The message you're receiving from all this is that if you aren't doing well, it's not their fault, it's your fault."
Dr. Wadsworth also points out that companies vary in the amount of flexibility they give their franchisees: "Some systems tell you what to do every step of the day, from the moment you put your key in the door in the morning; others give a lot of flexibility," he says. "But none give their people total freedom."
And that's the way most franchisees want it. While fewer than half of the franchisees surveyed say they're allowed to "exercise their entrepreneurial abilities" or innovate with new products and services on their own, 60% say they have as much independence as they want.
"The key to a franchise's success is consistency; getting the same sandwich or hotel room or service in Gainesville (Fla.) as in Topeka (Kan.). So if you're a true entrepreneur, you probably don't want to own a franchise," Dr. Wadsworth says.
David Boyuka, a Woodcraft Supply Corp. franchisee in North Carolina, concurs. "At 40 years old, with a family, I found it too scary to start a business completely from scratch. With a franchise, I had most of what I needed already in place when I turned the lights on the first day," he says. "There's a price to pay for that, but you accept that that's the deal you struck."
Even though most franchisees want the method of operating or the fully developed products their companies provide, like any offspring, their relationships with their parents change as they mature and become more confident business owners. "I notice a change at about the three-and-a-half-year mark," says Dr. Wadsworth. "Even if they're doing better financially, they're less satisfied with the system."
Mr. Boyuka is a case in point. He was franchisee No. 5 for the Parkersburg, W.Va., woodworking products and services provider when he signed on five years ago, and his company gives him a lot of flexibility relative to other franchises. Still, as time goes on, he sees a limit to how much support he needs and wants, and to how much he's willing to pay for it.
"I came into this thinking I would build a multistore network across North Carolina, but I've abandoned that idea," he says. "I opened the first store because I wanted a bridge from my corporate career to something else, and that reasoning stands on its own merits."
Still, he sees himself on the far side of that crossing now, and as a result, he says. "I can't see paying the same toll five times over."
Copyright © 2004 Dow Jones & Company, Inc. All Rights Reserved
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