To The Power Of X Franchising through the eyes of the MTV Generation

Be Your Own Boss - Fall 2000

Chris Smiley hasn't slept through the night in five years. He has a rambunctious 2-year-old child, but it's not his son who interrupts his sleep every night-it's his baker. Chris and his wife, Janae, are co-owners of one of the top-performing Manhattan Bagels franchises in the nation, located in Lancaster, Pennsylvania. At 2 a.m., the Smileys wake up to a call from their baker, letting them know he got to work as planned.

Chris is often to work by 4 a.m. himself. Five years ago, at the ripe old age of 26, he and Janae elected to give up sleep and security in order to join the growing ranks of Generation X franchisees.

Chris' story is typical of his business-minded peers. "Some people just have that entrepreneurial spirit," he says. "I was constantly looking. When Janae and I traveled, I always noticed what the world had that we didn't have back in Lancaster."

On a trip to New York City, Chris picked up some bagels-the idea for starting a bagel shop occurred to him on the trip home. "I thought, 'This is something we could handle.' It wasn't totally beyond my comprehension."

But Chris didn't consider buying a franchise at first. It was only after he spent some time visiting bagel shops in Philadelphia; Washington, DC; New York City and surrounding areas, and talking to as many owners and workers as possible, that "the idea of doing this on my own became overwhelming," he says. "I didn't know anything about fixing the equipment or mixing the dough. I had never worked in food before. Making a good bagel is not an easy process-there's a low margin of error"

Chris then started researching bagel franchisors, finally picking Manhattan Bagel and lining up financing in the manner typical of Generation Xers- borrowing from family, cashing in personal savings and receiving financing assistance from the franchisor. With little collateral or business history, young adults are usually not ideal candidates for traditional bank loans and financing.

"The bank wanted us to put down 25 to 30 percent of our own money [for the $225,000 total]," says Smiley. "We had just a little townhouse and no assets, but my wife and I had saved up $40,000 to $50,000 in savings, and we borrowed the rest from our parents."

"Many Generation Xers are being financed by their baby-boomer parents," says Andrew J. Sherman, chairman of the franchising department at Katten, Muchin, and Zavis, a Washington, DC, law firm that assists early-stage and rapidly growing franchisors. "[A Gen Xer] graduates from college and is offered a $75,000-a-year job, then has an opportunity to go into business for himself or herself, and the source of capital is there because [the Gen Xer's baby boomer parents] have it. Franchisors often put the parents of the franchisee on the hook financially."

Yet the market isn't open merely to those Gen Xers who get by with a little help from mom and dad. Many other entrepreneur wannabes only have a few grand to invest after they liquidate their 401(k)s, max out their charge cards and beg from family members, and they need structured training programs that compensate for their lack of business experience. There are a whole slew of franchises and business opportunities available to those who don't have a fortune to spend on start-up. One such business opportunity is National Details Systems, an auto-detailing business opportunity based in Thousand Oaks, California. National Details Systems operates like a franchise, providing dealers with on-going tech support, manuals, the use of its logo and name, equipment, marketing, training and an extensive product line. But the cost of entry is lower than many other franchises. For a range of $500 to $10,000, prospective National Details Systems dealers can purchase a detailing business on wheels and set up shop anywhere they choose, with no ongoing franchise fee.

Greg Dumond, the company's founder, has put 600 entrepreneurs into the auto-detailing business since 1984. Opportunities like his are attractive to Gen Xers who can't cough up the kind of capital that the Smileys needed to purchase a Manhattan Bagel franchise.

Azriela Jaffe is the author of eight books, including Starting From No: Ten Strategies to Overcome Your Fear of Rejection and Succeed in Business (Dearborn), and a nationally syndicated columnist ("Advice from A-Z"). Visit her Web site at www.isquare.com/crlink.htm.

Choice Of A New Generation?

The University of Michigan and Marquette University reported that Gen- eration X was responsible for 70 percent of all new start-up ventures in the United States in 1999. The Gen X propensity for risk-taking, high-energy work, independence and creativity, backed by parents' investment money, makes entrepreneurship an attractive alternative to a corporate career.

Mary E. Tomzack, author of Tips & Traps When Buying A Franchise (Source Book Publications) and president of FranchiseHelp, a research-information and consulting firm on franchise issues, reports that Gen Xers were entering franchising at such a significant rate, her publisher urged her to revise her book to address Generation X issues in franchising.

Dick Dodson, a business broker for 19 years, and founder and executive director of the Mid-Atlantic Business Brokers Association, has put together many franchising deals for Gen X entrepreneurs. "This is a recent phenomenon," he says. "The whole spectrum of business buyers has changed in the past 20 years. The corporate ethic has changed in America. Our [national] icon has changed from John Wayne to Bill Gates. Business ownership is appealing to a much younger group of men and women."

Dodson adds that more of these entrepreneurial Gen Xers are choosing to become franchisees because "they're attracted by the noted success that most franchises have been able to achieve," he explains. "With all the information available on the Internet, decisions to buy franchises are easier to make. The financing packages are much more attractive now than they were even 10 years ago. Franchisees get more for less."

But as Gen Xers migrate to the world of franchising, certain questions arise. Are creativity and franchising like oil and water? Can Generation Xers have personal needs for independence met under the restrictions of franchising?

Contrary to popular belief, a certain degree of latitude and autonomy is available in franchising, if you pick your franchise carefully. When Jeff Rikon, 29, bought a Glamour Shots franchise in Columbia, Maryland, he knew he'd get the training he needed; what he didn't count on was the independence he was allowed. If Rikon wanted to do something out of the ordinary with his business, he was apt to hear from the corporate office, "Well, 200 of our other franchisees do it another way, but if you want to give it a try, go ahead." The only clear restriction he had to abide by was no nude photographs.

Here Today. . .

What makes a Gen Xer stick with a franchise? For one thing, more financing, so they can expand their one unit into an empire. According to Tomzack, financing isn't as big a hurdle after buying the first franchise-many franchise-finance companies gladly help finance successful franchisees.

Franchises also have to understand that patience isn't typically a Gen X virtue. This drive toward fast results and quicker start-up success leads them in the franchising door, and, with a proven formula and training. Gen Xers can often turn a profit quicker than if they were starting out on their own. But this attraction is also the potential kiss of death for Gen Xers and franchising.

The problem leans toward keeping, not attracting, Gen X franchisees. Tomzack noted that most franchisees make serious money only after they've become multiunit franchisees or franchisors, and Gen Xers may get bored five years into their 1O-year franchise terms. In fact, Rikon recently sold his Glamour Shots franchise because he was tired of dealing with customer complaints. "Ninety-nine percent of the women we photographed didn't like the way they looked," he explains.

Dodson has seen how the same impatience that drove Gen Xers to franchising in the first place might become a disadvantage: "They don't want to wait to get something done or accomplished that might be better off aging a bit. Also, this generation doesn't hold the same regard for savings and cash efficiency as the boomers." Dodson and other experts note that, whereas generations previous to the boomers stuck it out no matter what, it's not unusual for boomers and Gen Xers to change careers six to 10 times in a lifetime.

In the year 2000, Gen Xers can choose from a wide range of franchise opportunities, from at-home ones you can get into for $5,000 to $10,000, to fast-food joints with $1 million admission prices. The trend to watch is not only whether Gen Xers gravitate toward franchising, but whether franchisors will create more opportunities in the high-tech, entertainment, sports and Internet fields, where Gen Xers can have businesses they'd enjoy and personal and family lives as well.

Build the field of dreams and they will come? It looks that way. But if they come, will they keep playing? That remains to be seen.

Contact Sources

Richard W. Dodson, (703) 451-7822, redodson@dc.infi.net

Katten, Muchin and Zavis, (202) 625-3790, andrew.sherman@kmz.com

Manhatten Bagel (franchisor),www.manhattenbagel.com

Manhatten Bagel (franchisee),csmiley369@aol.com

National Details Systems, (800) 356-9485, info@nationaldetail.com