May 5, 1997

Franchising your way to success

Business owners turning to method as way to expand

I. Satya Sreenivas Special To The Business Journal

From bagels to beer joints, fashion boutiques to fitness centers, almost any type of business is being franchised these days.

The concept is gaining popularity among entrepreneurs as a way to expand their respective businesses.

Franchising has seen explosive growth in recent years and is estimated to account for nearly 40 percent of all retail sales in the United States.

Research firm Naisbitt Group anticipates that franchising will account for more than half of retail sales by 2000.

And according to the International Franchise Association, 1994 sales by franchise organizations is estimated at $975 billion.

But before jumping on the franchise bandwagon and anticipating the cash to start flowing in, there are various aspects that a business owner must have in place.

Aspects such as a business that is successful and has a national appeal.

"[Also], a credible and able management team is a key issue. And it should be a business that can be standardized and duplicated without major changes," said Mark Siebert, president of Francorp, a franchise development and consulting company based in Olympia Fields, Ill.

Mr. Siebert said that franchising as a means to growing a business has low risk, gives the business buying power, enables better quality control and is a good exit strategy for entrepreneurs.

Once you decide your business has the potential to become a hit on the franchise route, you need to work on transforming your business into a model that's easily franchised, experts said.

A business model that can be duplicated, a standardized operations strategy, a structured training module, a national marketing strategy, a detailed geographical growth strategy and a strong management team are essential first steps to undertake a franchising effort. The business should also be easy to operate.

There is a belief in the marketplace that franchising is for established names in a particular industry. But according to Mr. Siebert, that's just a myth.

He said that only 20 percent of the buying decisions of entrepreneurs is based on brand equity of a particular franchiser.

The remaining 80 percent want a business concept that works and costs less than the top dollars required for a major name in the business.

Another myth is that franchising is good for only retail businesses.

However, many companies, ranging from automotive oil-change shops to personnel services, have proven that anything and everything can be a successful franchise.

Express Personnel Services, an Oklahoma City-based franchiser, has grown from 13 offices in 1983 to more than 350 in 1996. Revenues now exceed $1 billion and the business employs more than 250,000 people.

The company has expanded internationally and has affiliates in Canada, Great Britain, Russia and Ukraine.

Express franchised the concept of staffing services including temporary assignments, full-time placements, contract staffing, executive search and related human resource services.

The company charges an initial fee between $14,500 and $17,500, and charges 40 percent royalties. It's franchisees require an investment of $100,000 to $120,000 to start in a new location.

"Contingent work force makes up nearly a quarter of the work force. It is estimated that by the year 2000 it will reach 33 percent. We provide great training, excellent administrative support and a national marketing strategy to our franchisees," said Linda Haneborg, vice president of marketing and public relations of Express Personnel Network.

Ms. Haneborg attributes the success of her company to a good concept, a thorough selection procedure and evaluation criteria for awarding franchisees and a strong hands-on management style.

Once you have a strong business model, a unique and hot concept and have created necessary operations and marketing strategies, the next step is choosing the right franchises.

Franchising experts advise that the selection of franchisees should be based on strict evaluation criteria and it is essential to select people that share similar values, have strong management ability and are committed to the concept.

An entrepreneurial spirit also helps.

The strength of franchising is in part due to the entrepreneurial spirit of franchisees and their motivation to succeed. But many franchising companies prefer to have their franchisees take up multiple outlets, rather than have them owned by different people.

This helps them in providing growth opportunities to existing franchisees, retaining them within the system, grow with people who already know the system and have proven to be successful with other locations.

"Our growth has come from within and that shows the confidence of our franchisees in our company and our corporate culture. Most of our franchisees own multiple locations and we expect the trend to continue which helps us a great deal as these people know our system," said Ms. Haneborg.