June 8, 1998

Marketing On A Shoestring

Want to buy a franchise? Here are tips

Alf Nucifora

For many, franchising represents an opportunity to achieve the American Dream.

Escapees from corporate America, entrepreneurs and mom and pops are flocking to the industry like never before. Why? For one thing, the U.S. is fast becoming a wealthier society. Rich retirement plans are no longer the exception. The stock market continues its dizzying climb and now everyone wants to be an entrepreneur.

The franchising statistics are certainly eye-popping. There are more than half a million franchise businesses in the United States alone, employing 8 million; 600,000 franchise/small business owners drive the industry; sales revenues from franchising operations, currently totaling $800 billion per year, are expected to account for 50% of the nation's retail sales by the year 2000.

And the future looks even brighter. Tough Federal Trade Commission oversight, as well as regulatory laws enacted in 13 states, have contributed to a basic cleansing of the industry.

It's also possible to become filthy rich via the franchising route. While the average franchise owner reports an annual gross income of $91,630, some, like the Dairy Queen franchisee in Texas with more than 40 locations, have done very well for themselves.

The real growth in franchising is in the service sector, according to Don DeBolt, president of the International Franchise Association. Hot concepts include NextCare, a network of primary and urgent care centers that keep costs to patients low by buying supplies and malpractice insurance at volume discounts; Law Corps, a temporary legal staffing firm that supplies attorneys, clerks, paralegals and support staff to law firms, corporations and government agencies; The Resettlers, specializing in helping plan, pack, unpack and resettle clients in retirement communities and nursing homes, and even operating consignment stores to sell unwanted items.

DeBolt also identifies seasonal franchising as the next wave. One new franchise, Christmas Decor, provides Christmas decorating services for homes and businesses. During the rest of the year, the franchisee runs a commercial lawn care business which provides cross-over clients. The concept works particularly well for operators who live with a seasonal business, swimming pool maintenance firms for example.

According to the IFA, reputable franchises provide a number of significant benefits over the traditional start-up operation including a recognized trademark, a peer group for support and cross-fertilization of ideas and advice.

However, pitfalls do exist. DeBolt warns that most franchisees fail because of a combination of unrealistic expectations, poor or insufficient homework and not anticipating the amount of time and energy required.

IFA data reveals that the average franchisee is 35-45, male (70%) and with some degree of prior experience in the corporate sector. An increasing number are professionals, e.g. doctors and lawyers who made poor career choices in their youth. Most successful franchisees exhibit a strong work ethic, a high entrepreneurial spirit and a realistic expectation of what they paid for up front.

Many a thriving business has entertained the notion of franchising its concept. For those contemplating such a move, the following guidelines should be carefully considered:

  • Can the business be cloned, or is it dependent upon the owner?
  • Can it work well in multiple markets?
  • Can it provide year-long cash flow?
  • Has it been successfully tested in one or two markets prior to committing to regional or national roll-out?
  • Is it a business that can generate revenues with low overhead?
  • Can it, at a minimum, throw off $300,000 to $400,000 a year in revenues for the franchisee?
  • Is the franchiser capable of accepting "balance," i.e. providing sufficient freedom to keep the franchisee happy, while maintaining control of the concept?
  • Will the franchisee be willing to undertake extensive, up-front legal work with franchise attorneys and consultants? Remember, the laws on presale disclosure are exceptionally strict.