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CHAIN REACTION
Franchises can be a good compromise for those who want to be entrepreneurs but aren't comfortable going too far out on a limb
Alan Wyatt had achieved success and satisfaction as a regional vice president for a major corporation, but he had a dream to own his own business.
"I knew I had the knowledge, confidence and resources to work for myself; I just didn't know in what," Wyatt said.
Wyatt researched the risks of entrepreneurship and discovered that about 90 percent of small businesses fail within three years. With a family to consider, he had more questions than answers until he heard Leslie Kuban speak at a franchise seminar.
"It was as if Leslie had customized her speech for me. She answered a lot of questions and helped me realize that, with a franchise, I could buy a blueprint for success," Wyatt said.
If you thought franchising was limited to fast-food chains, take another look.
"Franchising is growing by leaps and bounds," said Kuban, an Atlanta consultant with FranNet, a national franchise-brokerage firm founded in 1987. "I can't think of a single industry sector that doesn't have franchise opportunities: automotive, retail, travel, personal services -- and there's a large franchising world for business services."
Nearly 900 new franchise concepts launched in the last three years in the United States, according to research conducted for the International Franchise Association by FRANdata Corp. The researchers found growth in 17 of 18 franchise-industry categories. Already in 2004, a study done by PricewaterhouseCoopers showed that franchising generated more than $1.5 trillion in economic activity and provided 18 million jobs.
"Franchising is a way for companies to grow their business by getting other people to invest in the growth, and it's been around a long time. Singer, the sewing machine company, was doing it in the 1800s," said Bill Williams, executive vice president of the franchise division of Murphy Business & Financial Corp.
Several factors have fueled the recent growth, he noted, including baby boomers who retire but want to keep working and Gen X'ers who are looking for an alternative employment route.
"Companies are continually compacting, and some workers are using their severance packages to invest in a business that will feed them for the next 10 years," Williams said.
With so many choices, they often to turn to a franchise broker to learn about the process and make the right match. Franchise brokers wear several hats, including consultant, recruiter and career coach.
"Leslie [Kuban] asked me so many good questions about what I wanted in a business and helped me assess my risk tolerance," Wyatt said.
Both the financing and the personal situations have to be right to go into franchising. "Your head and heart have to be in the right place. You need family support, financial stability and confidence in yourself," Kuban said.
After learning that Wyatt had a degree to teach art and had worked his way through college in a picture-framing business, Kuban made four recommendations, including a home-interior design business.
Wyatt spent about four months talking to entrepreneurs and franchise owners, but he was most impressed with the owners of Designs of the Interior, a Chicago company with 20 franchise locations.
"On the plane home, when I realized I was thinking about the business in the present tense, I knew it was the right one," he said.
Wyatt traded the instant brand and national-advertising benefits of a large franchisor for the freedom to make his mark with a smaller company.
"Some franchisors are so established that it's almost like painting by the numbers. I have a basic blueprint and a bit of a safety net, but I get to be creative. I feel like an entrepreneur," he said.
With more than 140 manufacturers affiliated with Designs of the Interior, Wyatt was able to give his store in Johns Creek its own look. The showroom reflects the kinds of furnishings he can supply at "tremendous pricing, thanks to the collective buying of the franchisor." Service is the heart of the business, however, as designers help clients bring their home-furnishing dreams to life.
Eighteen months into the business, he's happy with the company and grateful for Kuban's advice and his wife's support.
"I'd be helpless without [my wife]. She's a CPA and comes in 15 to 20 hours a week to do the finances. She takes the accounting part off the table for me, so that I can concentrate on marketing and growing the business," Wyatt said.
He's slowly but steadily hitting his financial and business goals and is enjoying meeting other owners of small businesses and seeing his store become a "neighborhood community place," as he hosts charity and other events.
"I couldn't have done this without my experience in corporate America, but, from a quality-of-life standpoint, I have no regrets," Wyatt said. "I live two miles from the store. I see my wife and children more, and I'm definitely having fun."
Costs may vary
Chris Hedges left a job as a telecommunications manager at a commercial real estate company to begin Spectrum Home Services of North Atlanta after he met Williams at a church networking session.
"Starting a franchise is hard work, but it's just different when you're working for yourself," Hedges said.
He was tired of technology and its constant changes and wondered whether he had the personality and financial means to become an entrepreneur. From Williams, he learned that franchises came in many forms with a variety of price tags.
"Generally, franchisors want to know that you have liquid capital of $50,000 to $100,000 and net worth between $300,000 and $600,000," Williams said. "The net worth shows what you can borrow. Recently, people have been able to borrow [legally] from their 401(k) and IRA plans without incurring taxes or penalties."
The franchise fee, which can run from less than $20,000 to $1 million, is only the tip of the iceberg. There are startup costs, and franchisees need to be able to cover six to 12 months of living expenses before the business begins to pay a salary.
"That's why I only consult with spouses present, because both parties need to be committed to the change in lifestyle and career to make the plan work," Williams said.
Hedges knew that his wife, Kim Marie, had some reservations at first.
BILL WILLIAMS
Executive vice president of the franchise division of Murphy Business & Financial Corp.
"Fortunately, we had always been good planners and savers and had extremely good credit -- we were able to pay the fee from a home equity line of credit -- but it was the company that convinced her," Hedges said.
Hearing that Hedges wanted a business that he could feel good about, Williams had recommended Spectrum Home Services, out of Salt Lake City, as one of four choices. The company does household repairs and small renovations and offers personal care and companionship services for clients that include senior citizens.
"We liked that this business targeted multiple markets, including real estate agents and senior citizens. We thought it would be a cool thing to provide services that would help people," Hedges said. "The company gave us the framework and marketing materials, but I also put together my own personal business plan, tailored to our market."
Hedges started the business in September and began paying himself a salary in February, a month ahead of his schedule. He has hired a general handyman and contracts with people to provide lawn care, home cleaning and nonmedical companion services for seniors.
"Finding the right employees is the most challenging part, but I've found I like marketing. It doesn't feel like selling, so much as providing a service that people need," Hedges said.
With the business growing through referrals, Hedges is glad he did it, but he advises franchise shoppers to do their homework.
"You have to look at all the costs and talk to other franchisers to hear the good and the bad, so that you can form your own opinion," he said.
Do the research
Franchises offer owners independence, control over their work, tax advantages and the possibility of more income. "You get less risk, more buying power and a network of other franchisees to share advice and problems," Kuban said.
It takes about 30 to 60 days to do the research, but a franchise broker can help reduce the learning curve with a proven system. He or she can save time by eliminating franchises that are too costly or in the wrong location, can identify the trends and can alert buyers to potential hazards, Williams said.
Kuban supplies her clients with a list of questions, because "there's a right and wrong way to talk to other franchisees, and that's the most important thing, because they'll tell you the good, the bad and the ugly," she said.
The success rate is high for those who choose well and follow the proven business system. Kuban said that about 25 percent of franchisees are empire-builders with a passion for owning multiple facilities, and about 50 percent are "happy campers" who have achieved independence and a good level of income.
The remaining 25 percent find that franchising doesn't meet their expectations.
"That still a 75 percent satisfaction rate," she said.
