Sunday, December 14, 2003

Want to own your business? Start out with a franchise

By Wayne Tompkins
The Courier-Journal

LOUISVILLE - Workers downsized in a weak economy often flock to franchises as a solution to unemployment. The concept offers a support system attractive to people lacking the means, experience or courage to start a business from scratch.

"Self-employment as a whole typically goes up as the economy worsens, but franchising definitely has a big upswing," said Geoff Wilkinson of the Entrepreneur's Source, a Louisville firm that coaches and consults clients starting a business. "Why reinvent the wheel when we can just borrow from what somebody else has already done?"

• Talk to and visit as many franchisees as possible.
• Talk to and visit the franchiser and learn the history and experience of the officers and managers.
• Ask questions. No subject is too trivial.
• Compare yourself to other franchisees.
• Research, research, research.
• Hurry. Shortcutting research can increase likelihood of failure.
• Overextend your personal finances. Be realistic.
• Settle. Get the business you want, not the first one that comes along.
• Accept anyone's word. Find out for yourself. It's your money, your risk and your opportunity.
Source: FranNet
Carl and Josie Althaus thought owning their own deli so that Josie could put her culinary arts training to use would be their next step after retiring from the Army.

But during their research, one statistic jumped out at them: after 10 years, 90 percent of franchised businesses were still in business, while only 18 percent of independent businesses were still open, according to the U.S. Department of Commerce. They chose franchising.

"We went to a Subway, a Quiznos, a Penn Station and a Blimpie, got the same sandwich from each of them and set them side by side," Carl Althaus said. Alongside those sandwiches was one from Obee's Soups, Salads and Subs, a Florida-based franchise unknown in the Louisville market. "We smelled them, we felt the bread, we tasted the bread, tasted the sandwich and there was no comparison."

The couple opened Kentucky's first Obee's in April and already plans two additional locations.

Franchising involves a business, the franchiser, licensing its name and operating methods to a person or group, the franchisee. In exchange for use of the name, products and support, the franchisee pays a one-time entry fee and royalties.

Buying a franchise can be a great first business even for people who aspire to one day build their own company, said Bruce Kemelgor, director of the Small Business Institute at the University of Louisville.

"It's an ideal way to enter a business for many people because they're starting out with a known or proven product in most cases, tested methods and much less chance of failure," Kemelgor said. "If they have little business experience, they can rely on the experience of the franchiser to supply all the established management tools."

The success rate of franchises and their relative ease to acquire can make that option sound a lot easier than it is, however. The hours can be as long as an independent small business and some franchise opportunities are scams.

Thom Crimans, a franchise broker and consultant who heads FranNet MidAmerica in Louisville, said once a prospective franchisee selects a business, the most important thing is to talk to other franchisees in the system.

"Not just the happy, smiley ones but the unhappy ones and anybody that's left the franchise in the last three years," Crimans said. "If you can talk to them, you may find it's a bad business to be in."

Carl Althaus remembers turning down one company, in part because a meat freezer at the store the company showed off to prospective franchisees seemed disturbingly warm. He asked what the temperature was.

"The corporate (executive) and the manager didn't know where the thermometer was," he recalled.

"As they were looking for the thermometer, they found a bunch of beer cans in the cooler."

Crimans said in the nine years he's worked with franchisees he has seen changes in the types of people interested in getting into business.

"In the beginning, I had just a few people who were downsized from corporate jobs. They kind of were in shock. This had never happened to them before," Crimans said.

"Now, I'm seeing people who have been through it two or three times."

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