Should You Franchise Your Business?

The International Franchise Association says that franchisees benefit from the franchiser’s “knowledge, image, success, manufacturing, and marketing techniques,” but are these the reasons franchisees choose one franchise over another? When it is time for the owners of a successful business to consider whether franchising is a good option for their company, it is important to consider the “real” reasons behind the choice of one franchise over another. Success in franchising is directly related to the franchiser’s capacity to attract and retain talented franchisees, so it is essential to think about the needs of the franchisees as much as needs of the changing customer marketplace.

Some people buy into a franchise because they have always hoped to own their own business and franchising is such an efficient way to realize that dream. Della Menechella of A&M Chem-Dry in Edison, New Jersey, is convinced that prospective franchisees should only buy a franchise if it is in a business they know and love and has a distinctive edge over its competition. The flat rate fee Menechella pays to A & M Chem-Dry each year buys her accessibility to a successful model and use of their unique patented dry cleaning process.

Diane Romar of Montclair, New Jersey, is glad that she was already used to working in a production environment before buying into AlphaGraphics. She wonders though if she should feel differently about having to pay the same franchise fees if she had come from the printing industry before joining Alphagraphics. Affiliation with Alphagraphics gave her a chance to learn. Name recognition attracted customers while she was still learning the details of an industry that was new to her.

“After a while I began to also appreciate the fact that behind the consistent external image of a franchise, there is a great deal of flexibility,” observes Romar. “Success in any retail endeavor rests firmly on flexibility and responsiveness to customer needs. I would suggest that other prospective franchisees ask to see evidence that the franchiser is also flexible and responsive to its customers, the franchisees.” Clearly, Romar’s needs during the first few years are not her needs today.

Romar’s and Menechella’s comments remind us that franchisers who hope to attract many new-to-business franchisees will need to spend some time on product development, competitive analysis and product packaging. New-to-business franchisees are typically all too aware of the fact that they have a great deal to learn during the first few years in business. They want to know that their choice of franchise will give them a strong head start.

Then, if the franchiser hopes to retain its franchisees, which is a key to success in any franchise, it must be ready to provide more value in the form of national advertising, growth management-related technical assistance, and flexibility.

Five years ago, when Menechella bought into A&M, she had hoped that she would also be getting national level advertising, but she now recognizes that other franchises assess their franchisees between 5-10% of their annual gross receipts for that service. She has done fairly well doing her own advertising although she is convinced that her advertising dollars would be more efficiently spent if A&M permitted her to mention her other business(es) within her advertisements. One would probably not expect that prohibiting the mention of a second business within a franchise advertisement would be a deal breaker when the new-to-business franchisee is first buying into a franchise, but franchisers need to take a long term view if they want to retain its most productive franchises.

Some people choose to franchise because it is less isolating than operating a home-based business. Cynthia Pyzak of Window Works in Wall Township, New Jersey, values the backup that is available to her. Pyzak was nine months pregnant with her first child as this article was being written. When interviewed, she calmly mentioned that a salesperson from another Window Works in Northern New Jersey would be covering for her during her three week maternity leave. Window Works has also provided some trouble shooting assistance for Pyzak over her four year history with the company.

Pyzak is convinced that she gets her money’s worth from her 5%-of-gross annual franchise fee.

“I met their President at a franchise trade show,” says Pyzak. “I liked his low key approach right away. He knew his franchisees, had been looking for a franchisee for the Wall Township area, and seemed ready to work with me.”

Window Works has not disappointed her. When the franchise approached the 100 store level, they faced their growing pains and added corporate resource people to retain the “family feel” of their franchise. Pyzak recommends that prospective franchisees talk to existing franchisees to confirm responsiveness of corporate staff. She recognizes that she will not be the only franchisee who could benefit from on-call availability of skilled problem solvers who want [her] to succeed.

Pyzak’s comments highlight the needs of franchisees that retain family obligations. Many a franchise can be built upon the efforts of hard working parents like Pyzak. Decorating Den and The Closet Factory are two excellent examples. Franchisers who have this population of prospective franchisees in mind will need to pay close attention to the “people skills” of their corporate staff.

Some franchisees describe the process of getting into franchising as “catching a bug.” After spending 30 years building a large insurance business, Marvin Adler of Somerville, New Jersey, started computerizing his agency. He went to computer shows and exhibits even after his agency was completely online. At about the same time, he had met a salesman, Ira Pulwer, who mentioned that an owner he knew was interested in selling his business. In no time at all, Marvin and Audrey Adler were signing papers for their first Computerland store.

“The funniest remark Marvin has ever made in his life is when he swore that he would only be a silent partner in the business,” laughs Audrey. “All four of us work in the store sometimes six or seven days a week, but we all love it, and what’s more, we still love each other!” After six years, Marvin and Audrey have recently opened a second Computerland store this time in Morristown.

The Adlers see the benefits of franchising as including the instant recognition on the part of the customer, national advertising, and cost savings due to franchiser inventories and warehousing.

“Being a franchisee also has some disadvantages,” shares Audrey Adler. “They make some decisions for you that you might not like. You have to stay with established formats. And there are restrictions on what you can and cannot do. Not everybody can handle the pros and cons of being one of the pack,” says Adler.

The Computerland franchise can afford to enforce its rules when it attracts franchisees that love the product and the process as much as the Adlers. With some product lines, the franchiser’s best approach is to go fishing by exposing bright people to their product and watch who takes the bait. To retain their franchisees, it will be important to not let the details of doing business smother the franchisee’s love of the product. Often this means that the franchiser needs to simplify procedures, provide technical assistance, and be very clear and consistent about its priorities. Most of the franchisee-to-franchisee correspondence will probably be about new technology or applications of the product.

Some franchises build their reputation on the experience of the franchisees rather than look for those who are new-to-business. Sheila Henry of Somerset, New Jersey, signed on with TransDesigns because she retains her independence as an interior decorator while having access to their line.

“I like the creative part of this,” shares Henry.

Henry and her husband had owned a porcelain refinishing franchise prior to her joining the TransDesign family, so she knew what she was looking for in a company. Success in building a franchise based on experienced people often rests on the franchiser’s willingness to be flexible.

TransDesigns permitted Henry to sell their line of products without purchasing a van. “That one fact made a $13,500 difference to me,” says Henry. “With TransDesigns,” Henry said, “I can keep my overhead costs down and pass the savings on to my customers by running design workshops in my apartment.”

Luann Voza of Franchise Consultants of America suggests that franchisers should view their companies like stocks being sold on the exchange. Some franchises are “blue chips” and will tend to attract buyers who are looking for low risk options and are willing to pay more up front. Other buyers are looking for “emerging” enterprises and prefer to invest their time up front and grow with the business.

Voza also reminds franchisers to present the value of their package in terms of “benefits” valued by prospective buyers. When Voza does workshops on the topic of franchising, she hears the same complaints over and over about the high cost associated with buying a franchise.

“Apparently the message just isn’t getting through that a new business requires investment of up-front costs be it a franchise or an independent operation,” observes Voza. “Plus, it’s easy enough to document how much money business owners would pay for advertising, development of procedures, operational consultants, etc., if they had to do it themselves. That one step would address the most common objective posed by prospective franchisees.”

The reasons for selecting one franchise over another vary from ease of access, to low up-front cost, to availability of backup, to national advertising, to immediate recognition, to flexibility, to reduced warehouse and inventory costs. A company that successfully makes the transition into franchising essentially has two product/service lines: one to address the needs of the customers and another to address the needs of its franchisees. Just as product lines and marketing programs need to be tailored to the customers being targeted, so do franchisee packages.

 

Known as The Growth Strategist™, Aldonna R. Ambler, CMC, CSP helps rapidly growing midsized companies (typically $20 – 200 million/year) realize their goal of Achieving Accelerated Growth With Sustained Profitability® through opportunity/resource analysis, executive coaching, strategic working sessions, and her intermediary role regarding growth financing. Her clients are among the brightest, most ambitious business leaders whose names now appear on published lists of the fastest growing privately held corporations. The recipient of 23 prestigious awards for her success as an entrepreneur and industry leader, Ambler hosts a peer-to-peer Internet radio program, aptly called The Growth Strategist™, which features lively interviews with CEOs of midmarket companies who have successfully executed the growth strategy of the week. AMBLER Growth Strategy Consultants, Inc. is the official coaching partner for the Greater Philadelphia MSA for Gazelles International. She can be reached toll free at 1-888-Aldonna (253-6662), by e-mail at Aldonna@AMBLER.com or online at www.TheGrowthStrategist.com

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