One of the more popular ways for starting a business is to buy and operate a franchise. While most people are familiar with the big competitors in this market, such as McDonald's, franchises are available in a wide range of businesses.
In addition to restaurants, automobile dealers and other more visible retailers, franchising opportunities exist in service industries such as home repair, business services and real estate. The quick-serve restaurants category is the largest in the franchise industry.
Franchises are growing at about the same rate as the U.S. economy. The International Franchise Association Educational Foundation anticipated the number of franchise establishments in the United States to increase by 1.7 percent in 2014, just ahead of the 2013 pace. It also expected employment in franchised establishments to increase 2.3 percent in 2014, about the same as last year. Overall franchise sales account for about 3.5 percent of the U.S. economy.
Aging baby boomers have created one of the newer and faster-growing categories of franchising - health care. Urgent care centers, testing centers, dental offices and chiropractors are a few health-related franchises that recently have become popular.
The concept of franchising is that the local entrepreneur (franchisee) buys the rights to sell the franchisor's (i.e., parent company's) product or service in a designated location or territory. In exchange for representing the parent company, the franchisee pays an initial franchise fee and continues to pay a percentage of its sales and a royalty to the franchisor for as long as the business operates.
Fremont native Terry Collins is the co-founder of Papa Murphy's Take 'N' Bake Pizza.
"Advantages (of franchising) are a proven system with expert guidance on marketing, site location, operations and buying power. Disadvantages are costs of being in a franchise, which can be $25,000 to $50,000 up front and 5 to 10 percent of ongoing sales" Collins said.
Papa Murphy's has more than 1,425 stores in 38 states, Canada and United Arab Emirates. Collins is a member of the Tiffin University Board of Trustees.
One advantage of buying a franchise is brand recognition. The entrepreneur starting from scratch has to build that reputation while part of what the franchisee buys is whatever brand loyalty already established by the franchisor.
Another advantage of owning a franchise is the initial training and ongoing management advice provided by the parent company. While the level of training and support can vary greatly, the franchisors want their franchisees to succeed.
"One of the advantages of owning a franchise is the help that is given to you on a corporate level concerning marketing collateral, branding, POS system, networking, webinars, etc. The years of experience that they have building their model and brand gives an owner a certain comfort level as well," according to John Lescher.
Lescher and his partner own a Jersey Mike's Subs franchise in Rocky River. Lescher earned a master's degree in business administration from Tiffin University.
Before going into the sandwich business, Lescher spent 14 years in the corporate world.
"We (Lescher's partner and he) talked through various options not only in franchise systems, but also starting something from scratch. We decided that franchising was our best opportunity at this time," he said. "There are still risks associated with franchising, but we felt it would be less risky than starting something from the ground up."
Success rates for franchises vary greatly among the companies selling them. Generally, the better track record the franchise has of succeeding, the higher the upfront franchise fee will be.
Unlike independent business owners, franchisees are limited in their decision-making by the franchise contract. The franchisor makes decisions about product lines, services and many other operating issues.
"If you are a true entrepreneur, you're being forced to operate within the rules of your franchise. This can be frustrating if you like to do your own thing without someone telling you that you can't," Collins said.
In the end, franchisees are trading off some of the risk of starting a new business. Entrepreneurs have to decide whether they want to take on the risk of ownership all for themselves or buy into a franchise that helps them reduce some of that risk.
Perry Haan is professor of marketing and entrepreneurship and former dean of the business school at Tiffin University. He can be reached at (419) 618-2867 or firstname.lastname@example.org.