Buyers Learn to Beware at Franchise Boot Camp

Louis Dominguez, a 53-year-old retired account executive with Verizon, was recently on a conference call with a representative from Alphagraphics, a print-and-copy-shop franchise based in Salt Lake City, and a group of potential franchisees like himself. One of the other hopefuls asked how many Alphagraphics stores had gone out of business in recent years, and the rep responded that he didn't know offhand and would have to get back to them, Mr. Dominguez recalls. That's when he jumped into the conversation.

"Let me ask the question a different way: Can you tell me how many franchisees have gone under in the last few years?" he remembers asking. "The guy gave me a figure, but said he'd have to really check."

Mr. Dominguez knew the question needed to be asked in that specific way and that franchise sales reps might try to evade it because he'd recently been to what can only be described as "franchising boot camp." "They showed us how a franchisee can go under, but the store will keep going [with] a new franchisee. Then the company might try to tell you it's a great business because no stores have closed."

The seminar that Mr. Dominguez attended in New York -- one of a series that Women in Franchising (WIF) and the United States Hispanic Chamber of Commerce (USHCC) recently hosted in five other cities as well -- was specifically aimed at "making people critical consumers of franchises," according to Susan Kezios, who founded WIF and ran the seminar. It's one of several workshops popping up around the country, usually sponsored by small-business organizations or business schools. These courses are designed to meet a rising interest in franchising -- often among people who have been laid-off or offered retirement packages before they were ready, like Mr. Dominguez.

Consider the demographics from the New York workshop: Thirty percent of the attendees described themselves as middle- or upper-level managers, and another 21% said they worked for themselves. But only about 35% were working full time, and less than 5% were working part time.

"The timing for these workshops is perfect," notes Randell Ramat, strategic-alliances specialist as the USHCC in Washington, D.C. "People are really interested in learning about franchising right now, and the economy probably has a lot to do with that."

Asking the Right Questions

Running a franchise is a unique business endeavor. After all, franchisees aren't quite entrepreneurs -- they have to run their businesses according to their parent company's rules -- and aren't employees, either, because they've invested their own money in the store or service they're running. Additionally, the five-year survival rate for individual franchise units is lower than for other kinds of start-ups, according to research by Timothy Bates, a professor at Wayne State University in Detroit.

So, regardless of your business experience or financial acumen, if you've ever toyed with the idea of running your own Dunkin' Donuts or Jiffy Lube shop, it's worth attending a workshop that lays out the basics of selecting, buying and running a franchise.

Most cover much of the same ground -- how to read the Uniform Franchise Offering Circular (UFOC) that tells you about the company and its operations; what questions to ask before signing the contract; why you should get an attorney who specializes in franchise law; and how to get financing, for example. But the workshops can vary in the tone they take and what they charge.

Avoiding Traps

The USHCC's workshop -- seven weeknights over four weeks -- was free, and Ms. Kezios, its chief organizer, has long been known as a vocal advocate for franchisee rights. She plainly states that fewer people want to buy a franchise after taking her seminar and doesn't think that's a bad thing.

"I want people to be aware of the challenges and pitfalls and know that this isn't a piece of cake," she says. "Whether they come away deciding they want to start a franchise, or an independent business, or go back to their nine-to-five job, that's OK." She says the USHCC and WIF are planning to run another series in four or five new cities starting this fall.

At the other end of the spectrum is a weekend-long seminar run by the University of Texas, El Paso, which costs $900 and is part of a continuing-education program run by the International Franchise Association, an industry group that represents franchise companies.

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