Franchising can be a win-win
By Lottie L. Joiner, Special for USA TODAY
In moving other people’s stuff, Omar Soliman and Nick Friedman unearthed a golden professional opportunity.
Pete Frese, president and COO, left, and Dennis Jarrett, CEO, lead Stratus Building Solutions out of their St. Louis-area headquarters. The commercial cleaning company relies on franchising to sustain their rapid growth.
The summer before their senior college year, the duo moved, recycled and disposed of unwanted items for spending money. After graduating in 2004, each took corporate jobs, but they soon yearned for a more entrepreneurial career. They revisited their venture, but planned to make it bigger than before.
“We wanted to be a national brand,” says Friedman, 29. “We didn’t want to just be two guys in a cargo van.”
With a small staff and limited resources, they had no idea how to expand. But they found their answer in franchising. They attended an International Franchise Association seminar to learn how to spread their concept, and shelled out $150,000 on legal and consulting fees, software development and other services to get their idea going.
At the end of 2007, they had four franchisees. Today, College Hunks Hauling Junk has 35 franchisees. System-wide revenues will be nearly $10 million this year, Friedman says.
Franchising a business idea may seem daunting, but it is doable. There are thousands of franchise options out there — from Rita’s Italian Ice to Gold’s Gym International — that once started out as a small business.
A “franchisor” typically sells a business concept for a one-time fee, as well as an ongoing royalty.
The person who buys in, the “franchisee,” can use the franchisor’s trade name and systems. For example, a pizza shop franchisee could use the franchisor brand name, as well as get guidance from that franchisor in selecting retail locations, training staff and setting up an ordering system.
The arrangement gives the franchisee a blueprint for success. It also allows the franchisor to grow his or her brand “with other people’s money,” says Mark Siebert, CEO of franchise consulting firm iFranchise Group.
Pay your money, make your choice
There are hundreds of franchise categories, ranging from pet care to oil change specialists, and the field is expanding. The number of franchise establishments is expected to grow 2.5% this year to 784,802, according to the IFA and PricewaterhouseCoopers.
Before seeking national name recognition and quick riches, business owners should note franchising trouble spots, says Jeff Elgin, CEO of consulting firm FranChoice.
There can be large financial expenses, as well as complex legal processes. Franchisors trying to sell five to 10 franchises in their first year could spend around $100,000, says Siebert.
He points out another potential hazard: putting a brand into someone else’s hands. With franchising, the founder doesn’t retain the same level of control that he or she would have when supervising staffers. Owners can terminate poor employees, but a franchisee cannot be fired, he says. The relationship can only be terminated if the franchisee fails to live up to the system and standards established in the contract.
But Siebert also stresses the positives. Many franchisees are driven to succeed because they’ve sunk their own money into the concept. A franchisee who has signed leases, paid legal fees and invested in training will “be highly motivated to make that business succeed,” he says.
Franchisors face competition for the ideal franchisee, simply because there are so many concepts available. The College Hunks founders tried to make their idea appealing by offering a streamlined process for running each unit.
“We had very strong systems for every aspect of our business — marketing, sales, hiring, training, customer service,” says Friedman.
The catchy company moniker also lures potential franchisees, he says.
A unique brand positioning is vital for success, says FranChoice’s Elgin. Many franchises fail because they can’t differentiate their offerings.
Elgin cautions that it’s a tricky balance, since a company also shouldn’t glom onto a novel fad that could quickly die out.
Retail and commercial cleaning franchise Stratus Building Solutions has done well by offering a necessary service while also adding new programs such as an eco-friendly cleaning option. It was named fastest-growing franchise in the country in Entrepreneur magazine’s 2011 Franchise 500 list.
Founders Dennis Jarrett and Pete Frese both worked at janitorial franchise Jan-Pro International before starting Stratus in 2004. Jarrett, 52, liked that office and retail store cleaning “can’t be outsourced overseas.” They first offered franchise opportunities in 2006 and now have more than 5,000 franchisees.
Training is important
A replicable system and a strong brand are essential, but Frese, 48, says that selecting and training competent franchisees is also vital.
Stratus essentially offers a “business in a box,” he says, with the systems and processes in place. It’s up to the franchisee to make the most of that concept.
“What (they) have to bring to the table is that desire, drive and motivation,” he says.
While the final success is ultimately up to the franchisee, Jarrett says Stratus helps franchisees to be as profitable as possible. In turn, that keeps demand for franchises up.
iFranchise’s Siebert says that approach is key to a healthy, long-living operation. “Make your franchisee successful, and you will succeed as a franchisor.”