More and more people pick franchise option

Article Written by : Manufacturing Stoke

Phil Gates knew it was time to leave corporate America.

He was working in sales, and although he was trained as an engineer, that wasn’t his passion either.

“In high school, I wanted to be an architect,” Gates said. “But I kept hearing about people having a tough time finding a job in that field, so I went into engineering.”

He said he thought about changing his major to landscape architecture halfway through, but decided to stick it out with engineering.

“I figured it was close enough,” he said. “I was OK with trying to fit a square peg in a round hole.”

But last winter, Gates knew enough was enough. He wanted to be his own boss and do something that made him happy. After months of research, he became interested in opening a franchised business, specifically Outdoor Lighting Perspectives, an architectural and landscape lighting company.

“Franchising appealed to me because I’m not smart enough to start something completely on my own,” Gates said.” Or, as some people say, I’m not dumb enough to start something on my own.”

Last June, Phil and his wife, Gina, opened Outdoor Lighting Perspectives of Iowa, working out of a home office. Gina, who previously worked for Principal Financial Group Inc. in human resources, manages the office and raises the couple’s three boys, ages 6, 4 and 2.

“It was a risk, but my wife and I thought the bigger risk was staying in an office where we weren’t happy,” Gates said.

Interest in franchising is growing, said Joe Cooney, president and owner of Frannet of the Heartland, a franchise coaching organization. He said many more people are investigating the possibility of owning a franchise than ever before.

According to the International Franchisors Association, if sales by U.S. franchise businesses were translated into a gross domestic product, they would qualify as the seventh-largest economy in the world. In Iowa, there are 9,407 franchises currently operating, employing nearly 120,000 people, according to a study by PricewaterhouseCoopers. In the 3rd Congressional District, which includes Des Moines, there are 2,037 franchises employing more than 28,130 people, the study said.

“Most people have a misconception about franchising, that it is all restaurants and retail, but that just isn’t true,” Cooney said. “The service industry is the fastestgrowing segment of the business, and for a lot of people, it can be a good fit.”

A franchise agreement conveys the right to sell a product or service. When purchasing a franchise a person is paying for the right to market an already established product or service owned by somebody else (the franchisor). Under a franchise agreement, the franchisee is expected to market the product or service successfully.

This route to business ownership has some distinct advantages. Risk is minimized, since a well-established franchise has a proven business method with established products or services. Franchisors like McDonald’s Corp. already have a well-known name that will bring customers to the business and provide a competitive advantage for the franchisee.

Many franchisors also provide extensive assistance in terms of marketing, advertising, even managerial support. Often, management training and followup assistance are provided. In many instances, a franchisee can obtain inventory items, supplies and equipment at a reduced cost due to the purchasing power of the franchisor. Some franchisors also assist franchisees in securing financing, while some provide the funding themselves. Franchisees find it easier to persuade banks and other lenders to provide loans because franchises are less risky than businesses built from scratch. Support can also be given in finding the right location, while some franchisors provide the layout, display, facilities and business techniques that have already proven successful in previous operations.

“You definitely gain in the marketplace by attaching your business to an established name,” Cooney said. “It gives you automatic credibility.”

That was one of the factors that motivated Wendy Christman to get involved with PostNet, a franchisor focusing on digital copy and document services, private mailboxes and domestic and international shipping. She started her business, located on Westown Parkway in West Des Moines, in 1995.

“You’re buying a brand and a market plan that has been proven to work,” she said. “I’m in my 11th year, and I’m still here.”

Christman said one of the best benefits to franchise ownership for her is the network of other PostNet franchises she has access to.

“Whenever I have a question, I can turn to them,” she said. “Who better to help me out than someone who has already been through the same thing?”

But franchising isn’t always a golden ticket. Robert Purvin is the founder and CEO of the American Association of Franchisees & Dealers, the oldest and largest organization representing the interests of people who own franchised businesses. He is also the author of “The Franchise Fraud: How to Protect Yourself Before and After You Invest,” published in 1994, and has practiced franchise law for 30 years. He said the myth that franchising is always safe can be very dangerous. “The typical franchise in today’s marketplace is an indentured servitude, by contract, with provisions that make it hard for the franchisee to continue in business following the franchise relationship,” Purvin said. “The advantages and disadvantages depend on the quality of the franchise system you choose. Franchising can be the answer to your dreams or your worst nightmare.”

Purvin said franchising isn’t so much business ownership as a license to operate someone else’s business for a fee, or “buying a job.” Franchisees are not entrepreneurs, he said, because they are obliged to operate according to the franchisor’s business model and operations manual.

“Whether the deal is good or bad depends on the established success of the franchise system,” Purvin said. “Buying a franchise that is a proven success can be a great career and investment, but many franchises are unproven and perhaps troubled.” In addition to the upfront fees, which could total into the hundreds of thousands of dollars for some franchises, royalty fees must be paid on a monthly basis. The royalty fees are based on a certain percentage of the franchisee’s income or sales, varying between 1 and 20 percent, and have to be paid even if the business is not profitable.

Cooney said matching a buyer with the right franchise is the most crucial step to success. That is why his company gives each potential franchisee who comes to it for guidance a personality test to see what type of business would best work for him or her.

“We help build a business model, and look at things that may affect the type of business they may be interested in, such as lifestyle, amount of work, income,” he said. “That will usually eliminate 90 percent of the options right there, then we simply focus on what fits them.”

Christman said for people who like to do things their way, franchising probably isn’t a good fit, because you have to follow the plan laid out by the company, as well as offer the services it wants you to offer. But, she said she would never have the time or the ability to keep up with national trends, which is something PostNet does for her as part of the franchise agreement.

“They keep an eye on the big picture, and keep me informed about what I need to do to stay competitive,” she said.

Gates agrees, saying franchising has given him the opportunity to own his own business, something he never dreamed he could do.

“I like being in control of my own destiny,” he said. “A lot of people told me that once you get into business for yourself, you will find more opportunity than you ever dreamed of. I see that now every day.”

Cooney said one of the biggest misconceptions about franchising is that if you like a product, you would be good at selling it.

“That just simply isn’t true, and more times than not, we help people realize that and try to point them in a more positive direction,” he said.

With many franchise agreements involving more than $150,000 in initial costs, Cooney said using services like his, which are free for franchisees, and consulting experienced franchise attorneys are important steps when considering operating a franchise.
“It’s a change of lifestyle and a significant investment, so you don’t want to do this wrong,” he said.