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Would You Turn Your Small Business Into a Franchise? Here's Why Everyone From Hardware Stores to Hot Dog Shops Are Doing It. When you've put your blood, sweat and tears into building an independent business, it's hard to know if converting to franchise is selling out, or buying into something better. We talked to business owners across industries about how they made the decision, and to franchisors on why they're pursuing the conversion strategy.

By Yiren Lu Edited by Frances Dodds

This story appears in the September 2023 issue of Entrepreneur. Subscribe »

Matthew Mazzone grew up stocking shelves and sweeping the floor at Mazzone Hardware in Brooklyn, a red brick storefront on a corner lot on Court Street. Originally opened in 1950 by his grandfather, a painter, it was passed down to his father. When Mazzone came home from college at 20 and showed an interest in the business, his father offered it to him.

By then, Mazzone knew that he wasn't suited for a corporate life, and with the family store, he could be his own boss.

But there's being your own boss, and then there's being the boss of a successful business. And within a few years, Mazzone realized if he was going to make a career out of the business, he needed to make some changes.

Related: Want Your Boss's Job? Here's How 8 Employees Became Franchisees.

The biggest problem was their supplier, True Value. The company fell into disarray in the early 2000s — after a revelation about years of unnoticed accounting errors by its wholesale buying co-op — and at critical moments, like Superstorm Sandy, Mazzone struggled to get inventory. He agonized over what to do. He felt loyal to True Value, but the relationship wasn't working. When he decided to leave True Value, he weighed his options. He could partner with a wholesaler, or join a co-op. Or he could convert the store into an Ace Hardware — but he assumed that would mean losing his independence, and having to operate someone else's way.

Still, he decided to explore becoming an Ace franchisee — and was pleasantly surprised by what he found. Ace sent a team to the store to evaluate, and the team made some recommendations for remodeling. They'd swap out old product SKUs for new Ace ones. They'd provide a data program to assist with inventory ordering. They'd provide updates on the most relevant, up-to-date products. But that was about it. Everything else, including the ultimate success of the store, was still up to him. And they let the store keep the Mazzone name, more or less: The store would now become Mazzone Ace Hardware. That sort of folksy touch was good for business.

When people think of franchising, they often think of buying and opening a brand-new franchise. But that's not always the case. Franchises in many industries are also interested in "conversions" — which is to say, recruiting existing, independent businesses to rebrand and become franchisees. Brands as diverse as Nathan's Famous hot dogs, Men In Kilts home exterior cleaning, Home Helpers Home Care, Pizzeria Uno, Aire Serv Heating & Air Conditioning, and the custom print shop FastSigns have conversion programs specifically to help this process along.

Of course, on both sides of the franchisee-franchisor divide, there's a lot to consider. On the upside, franchises can recruit experienced business owners who are already operating in their industry, allowing the brand to grow faster while eliminating local competition. Meanwhile, franchisees get the name recognition and operational support that a franchise offers. On the downside, owners feel understandably attached to the independent business they built, and they (and their customers) might be sad to see it replaced by a franchise brand. Plus, joining a franchise means they have to pay royalties and fees that can sometimes diminish what they used to earn.

But these are all bird's-eye-view calculations. We wanted to know what these business conversions look like on the ground, both for franchisees who've made them and franchisors who've benefited from bringing independent business owners into their franchise families. Even the most perfect deal involves tradeoffs, so what does it take to forge a partnership that's a true win-win for everyone?

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Image Credit: Courtesy of Matthew Mazzone

Matthew Mazzone might have been pleasantly surprised by the long leash Ace gave him, but he won't pretend converting was simple.

Mazzone Ace Hardware is bright and cluttered in the way of many inner-city hardware stores — a plethora of screws, electrical cords, and paint swatches, all condensed into 2,000 square feet. It's not difficult to imagine the challenges of renovation. "It's probably easier to join from scratch," Mazzone says. "If you have an 8,000-square-foot or 10,000-square-foot box, all you need is a template. When you're doing a conversion, you have to look at what products you're selling, convert them over to the new SKUs, figure out which products are obsolete that you want to get rid of, train your staff. But the beautiful part of doing a conversion is that you have an existing customer base."

When the store became Mazzone Ace Hardware in 2013, there were longtime customers who came in and said, "Oh, I liked it when it was a mom-and-pop store." But there were also new customers who came in and said, "When did they open up a hardware store here?" Even though the store had been around for 63 years, it was the first time it registered to them.

Related: I Became a Franchisee So I Could Be My Own Boss

Ultimately, for a business owner, the biggest commentary is sales — and just by changing the sign on the door, Mazzone's sales went up 12% the first year. Families were moving into the store's neighborhood from all over the world, and the Ace name gave it instant credibility. And with a Home Depot and a Lowe's nearby, having the Ace name meant Mazzone's store could realistically compete.

The average Ace Hardware store does $3.5 million a year in revenue, and after expenses, an owner can reasonably expect to take home a little over 10% of that. That's a good living anywhere, but it's made possible because Ace, as a large franchise, can get lower prices on products, which it then passes on to its franchisees. While legally a franchise, Ace is unusual in that it's structured as a co-op. When stores convert to Ace, they pay an up-front investment fee to become shareholders in the co-op. This means they purchase the majority of their inventory from Ace — but also, circuitously, Ace's profits from those wholesale transactions are redistributed to all the store owners as dividends at the end of the year.

In addition to the pricing discounts, a lot of what franchise conversion programs offer is a way for small business owners, many of whom are not digitally native or trained MBAs, to offload the business operations and marketing side of things. "You're getting pricing discounts, but you're also getting help with how to set up your store, business advice, marketing, online support, social media," Mazzone says. For example, Ace stores pay monthly into Ace's Local Lift program, a joint pool of money for Google Ads. Customers searching for "light bulb near me" or "Ace store near me" on Google will see Ace advertisements for individual stores. These ads are managed by the Ace corporate marketing team, so the individual stores don't have to worry about them.

Today, Mazzone owns four Ace stores in the New York area. When COVID hit, he felt especially grateful to be part of a larger system. "After the initial month or two of people locking themselves in, May 2020 was probably one of the busiest months we've ever had in our 70-something years of existence," Mazzone says. "The consumer demand was basically insatiable." Although supply chains were snarled globally, Ace kept the inventory flowing. Mazzone believes it would have been impossible to serve their customers without that.

While some franchises like Ace have long offered conversion programs, for others it's a more recent experiment. And sometimes, these programs can be a clever strategy to address a very specific problem.

Take Pizzeria Uno, the deep-dish pizza restaurant franchise. The company had tried fast-casual concepts in the past, but none met expectations. CEO Erik Frederick knew they needed to get creative to compete, so he came up with a new strategy: hotel restaurant conversions.

Hotel restaurants are a bit of an odd duck in the hospitality industry. Hotel chains like Hyatt and Marriott are franchises themselves, and if a franchisee is converting to one of these brands, they're often required to have an in-hotel restaurant. This means that hotel owners are left running restaurants that they have neither the talent nor inclination to run, and often losing money on them.

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So Frederick's pitch to the hotels was simple: If you take your hotel restaurant and make it a Pizzeria Uno, your guests are more inclined to come because it's a brand and menu they recognize. You'll also get delivery orders from Grubhub and DoorDash, from both inside and outside the hotel, and locals will come in to eat, too. "When I go out to eat, I don't usually say, 'Hey honey, let's go to the Marriott tonight and get a bite,'" Frederick says. But rather than being a "hotel restaurant," it's now just a Pizzeria Uno that happens to be in a hotel.

For franchises that involve real estate and physical inventory, the upfront renovation costs can be onerous, so Pizzeria Uno tries to target hotel owners who are renovating anyways. "One of our hotel owners bought a Comfort Inn & Suites, and they're converting it to a Delta by Marriott," Frederick says. "So they're completely redoing their restaurant anyway." By catching hotels at this specific moment, the relative costs are low. Furthermore, since it's already a restaurant, the changes are mostly cosmetic, like switching up the fabric on the booths or changing the paint on the walls. At one conversion location that had previously been a speakeasy, Pizzeria Uno changed nothing in the bar area. "For the most part, the expensive part of the kitchen is already built out," Frederick says. "Everything from the walk-in freezer to the venting and the grease traps."

In 2022, Pizzeria Uno converted five hotel restaurants, and many of them saw their sales double or triple. The hotel restaurant conversions have been so successful that the franchise is thinking of starting a new program that will match experienced restaurant operators with Pizzeria Uno hotel conversions. This would allow hotel owners who don't want to run their own restaurants to subcontract the job. Someone else runs the restaurant for them, and they just collect rent and maybe a portion of sales. "If you're a restaurant general manager of say an Olive Garden or Chili's, for you to start a restaurant, you're looking at a couple of million bucks," Frederick says. "That's hard to do. Buy used, maybe $750,000. With a conversion, the hotel already has all the heavy equipment, you just bring the working capital."

This highlights one of the biggest benefits of conversion programs for franchises: It enables the brand to target the sort of owner they're looking for.

At Ace, for example, the courtship of a potential convert can take years. "A lot of the vetting process we go through is to make sure that the new investor is a culture fit," says Jason Hipskind, corporate vice president of new business at Ace. Does a potential franchisee meet the brand's values? Do they have the right business, management, and finance skills? When someone is already operating a successful business, those questions are a lot easier to answer.

Related: This Key Tip is the Secret to Successful Franchise Sales

Image Credit: Zohar Lazar

The benefits of conversion, of course, don't come without costs to the franchisee. Apart from the potential renovation costs, there is typically an upfront franchise fee, and royalty fees on every sale. (Ace store owners don't pay royalty fees because it's a co-op.) For conversions, these fees are sometimes discounted, but they can still take a hearty bite out of a franchisee's bottom line.

Ray Bramble discovered this in 2009, when he converted his independent, Virginia-based HVAC business into an Aire Serv. Two years after the conversion, he was doing about a million dollars a year in revenue and working 70 to 80 hours a week. But he wasn't making any money.

"In the beginning, when [royalty] fees were coming out every Friday, it was tough to swallow," he says. "My Aire Serv coach was coming to see me and I said, 'You better bring me a bag full of money, because something is not working. I just had to go into my 401(k) to make payroll.'"

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The Aire Serv coach came and looked at his books, and gave a few sharp pieces of advice. The first big one: Because you're doing more volume, you could lower your material costs. "I could see he was right," Bramble says, "because my materials were high."

Then the coach dropped an even bigger suggestion: You need to raise your prices.

As a small business owner, raising prices terrified Bramble. "I was like, 'I can't raise my prices. I'll never get another job.'"

The coach asked him: Would you rather do 50 jobs at no margin, or 10 at margin?

It was a lightbulb moment for Bramble. "I increased my pricing and just had to accept [that customers would decide] whether I was worth it or not. But I was [worth it], because I was doing different things that other HVAC companies weren't." Aire Serv trained his team on how to have these conversations with his customers and overcome objections. It worked. In the 14 years since, Bramble has expanded his HVAC business to almost 70 full-time employees, including his two sons.

Bramble's story, while outsized in its success, is a common one. He started out as a technician, and for years he was just one man and a truck selling his own time and expertise. He didn't have a business background, or a plan for growth that would allow him to eventually step away from the day to day. Converting to Aire Serv forced him out of the reactive, ad-hoc decisions of a small business owner to a much more systematic, big-picture mode.

In some ways, converting a small business to a franchise can be thought of as a small business owner's version of an MBA, or hiring a McKinsey consultant. Here are people, with a lot of experience, who are incentivized to help you improve your business with ready-made playbooks, training, and systems. For a burned-out small business owner, this can be a huge relief.

"It's enjoyable knowing that if you follow a process, it will run smoothly, and every single time, your customers will be happy with you," says Kim Chudoff, who converted her and her husband's independent print shop near Philadelphia into a FastSigns franchise eight years ago. "It's so pleasant that they just gave us that playbook and now the stress is not there anymore." The Chudoffs had initially gone into the conversion with an eye towards selling the business, because it hadn't grown for years and they were both exhausted from running it. They'd heard that franchises sold more easily and for higher prices than independent businesses, so it seemed like a good investment.

Related: 7 Best Practices to Running a Healthy Family Business

As it turned out, the FastSigns conversion was so effective that business tripled — and eight years later, they still haven't sold it. But when they're ready to, FastSigns, like many other franchises, has a network of potential buyers.

That's surely on the mind of many other independent business owners who convert into franchising. Over the course of the next few years, millions of baby boomers will retire, many of them small business owners who made good livings from their businesses but don't have a retirement plan. Not everyone will be as lucky as the Mazzones, with an eager 20-year-old on hand, ready to devote himself to their family business. Everyone else can find successors in their franchise family.

Matthew Mazzone now has two kids — a daughter who just graduated from high school and plans to be a business major in college, and a 14-year-old son who loves computers. It remains to be seen whether either of them will want to work at the hardware stores. For Mazzone, owning branded stores that are part of a national network is part of the succession plan.

"If I wanted to sell my stores tomorrow, I would reach out to the local district manager and say that I'm interested in selling," he says. "They would reach out to their network of existing Ace retailers and ask them if anyone local was interested in buying. And if those retailers aren't interested, they might go ahead and look out for new investors who want to come into the business."

Over the years, Mazzone has indeed made a career for himself out of the hardware business, sitting on Ace's board of directors, and acting as a liaison to a group of young Ace retailers — many of them second- or third-generation owners who want to expand. He listens to their concerns and tries to help any way he can. He says people he's met through Ace have become like a second family to him.

So perhaps Mazzone Hardware will stay in the family regardless — or at the very least, Mazzone will stay in the Ace family.

Related: What to Know to Run a Successful Family Business

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