Is Franchising Right for You? Not All Entrepreneurs Thrive on a Predetermined Business Model
Morrow, Emerald S., Black Enterprise
LOSING YOUR JOB WHEN YOU HAVE A FAMILY TO SUPPORT can make you feel down, dejected, and downright depressed. But for 45-year-old Maurice Geyen, the setback was the motivation he needed to muster his courage to try franchising. "I knew I still wanted to be in business," recalls Geyen, who was a business manager before he was laid off in 2008. "But I wasn't prepared to start all over in corporate America."
Today, after setting up a corporation with some of his retirement account and investing nearly $200,000 of those funds in a franchise endeavor, Geyen and his wife, Kiesha, 39, are entering their third year as owners of a BrightStar franchise (one of BLACK ENTERPRISE's 40 Best Franchises for African Americans). Their Inglewood, California-based homecare, childcare, and medical staffing services franchise generated about $500,000 in revenues in 2010, and the couple expects revenues to double in 2011.
Now may be a good time to venture into franchising. According to a report PricewaterhouseCoopers prepared for the International Franchise Association (www.franchise.org), the industry expects growth in 2011 of 2.5%, or about 19,000 new establishments. This is compared to only 0.3% growth seen between 2009 and 2010. Business lines such as lodging, automotive, retail products and services, as well as personal services, which include healthcare, appear to be the sources of the growth, the report notes. Also, the Minority Business Development Agency (www.mbda.gov) reports minority firms are more likely to operate franchises than nonminority business enterprises.
While the Geyens are doing well in the franchise business, success is never guaranteed. Money is at stake and risks are involved, but careful calculation, research, and preparedness can help ensure a positive outcome. Here are a few things you want to keep in mind before making a commitment to a franchisor.
Entrepreneurs need not apply?
If you're going into franchising because you want to be an entrepreneur, you might want to think again. "Some true entrepreneurs make lousy franchisees," says Burton D. Cohen, founder of Dekay Beach, Florida-based franchise consulting firm Burton D. Cohen and Associates L.L.C., and professor of strategic franchising at Northwestern University's Kellogg School of Management. The concept of franchising is based on consistency, notes Cohen, and franchises can become a source of frustration for some entrepreneurs because of restrictions inherent to the industry. "These types of entrepreneurs want to have total control over every aspect of the business," he adds. "A franchised pizza parlor in one city, for example, will have the same ingredients, menu and even identical building designs as another location in a different place. This can be vexing for an entrepreneur who wants to add his or her own personal touch, or improve the business model in some way."
Robert L. Purvin Jr., chair man and CEO of the American Association of Franchisees 6 Dealers (www.aafd.org), a San Diego-based nonprofit trade association dedicated to the interests of franchisees, agrees. "There should be a sign out in front of every franchise that says, 'Entrepreneurs need not apply,'" he asserts. Geven notes: "Entrepreneurs want to do their own thing, and franchises want good lieutenants who can follow their model," which is what attracts many to the industry because you're provided a turn-key operation. "A franchise is about being part of a team," Geyen adds.
Due diligence is a must.
The worst thing prospective franchisees can do is slack on their homework. "This is something you cannot enter into casually," says Cohen, who for nearly 20 years was senior vice president and chief franchising officer of McDonald's Corp. (one of BE's 40 Best Franchises for African Americans). "Typically, people are putting, if not their entire life savings, a substantial portion of their life savings into a franchise, possibly going into debt and signing a lengthy contract--and those are things you don't do without a lot of investigating. …