The Smartest Franchisees in America
An in-depth look at a new wave of franchisees who are using their entrepreneurial smarts as true company builders.
Armed with fresh ideas -- and the freedom to use them -- a new wave of competitors is emerging from an unlikely sector. You have more to learn from them than you think
Generally speaking, the world is divided into two types of entrepreneurs: those who wear paper hats, and those who don't.
More than fashion sense separates the two. The fact is, some entrepreneurs are serious about company building, while others -- well, they wear what they're told to wear. And folks who regard themselves as genuine risk takers think of the ones with the paper headgear -- franchisees -- as overpampered and underexposed to the harsh realities of the marketplace. After all, true company builders sweat out their best ideas late at night, while franchisees need only leaf through the latest company manual. Franchisees stick to a proven formula; company builders, even if they believed such a formula existed, would have trouble following it. They just aren't much good at following -- which is the only skill that franchisees, sometimes derided as "entrepreneurs in a box," need to succeed.
Or is it?
Back in the golden age of the Golden Arches, franchising largely attracted business neophytes lured by the promise of big bucks in return for an effort that required more brawn than brains. In exchange for emptying out their kids' college funds, they could rely on the mother company to ferry them over the choppy start-up waters until they reached financial safety. To get there, their wisest strategy was to operate well within the confines of their franchise covenants, doggedly heeding instructions from headquarters.
It still happens that way -- once in a while. But with more than 570,000 franchised units in the country, and some 42,000 starting up this year, franchisees can't afford the luxury of waiting for the corporate honchos to think them out of their latest competitive jam. Their very survival is at stake. Timothy Bates, an economics professor at Wayne State University, in Detroit, reports in a recent study that only two-thirds of the roughly 1,200 franchised units he surveyed in 1987 survived under the same owner four years later. And if you doubt that some segments of franchising are oversaturated, consider this the next time you drive through a bustling commercial district: does the world seem to lack for places to make a quick copy or grab a fast bite?
It's a trick question. Because if that copy store offers the hottest technology, or the burger joint features a rock-and-roll band, it can find a healthy niche -- and some franchises have done so, as you'll read here. But those kinds of creative maneuvers aren't lifted from any company playbook. These days successful franchisees stay sufficiently inside "the box" to satisfy the fundamentals, like maintaining uniformity of product and style, but they venture sufficiently outside it to test new techniques in sales, marketing, operations, and other key areas. They're not renegades out to buck the system. Instead, they take the best advice their franchisors can provide, carry it to the nth degree, and then jump to a still higher level on the strength of their own ideas.
More and more, in other words, it's what's under that paper hat that counts.
What makes these franchisees so brainy? It's no coincidence that many of these folks -- by most estimates, at least one-third -- are corporate refugees who left voluntarily or were dumped overboard in midcareer as giant companies reorganized. Armed with severance cash and management skills, they are less subservient than their predecessors, and they aim to build substantial enterprises by applying what they know.
"These are highly educated people who have money, ambition, and the initiative to start a business," says Jerry Wilkerson, president of Franchise Recruiters Ltd., in Crete, Ill. "Five years ago you'd see more people at the trade shows and 'discovery days,' but they didn't have all those ingredients. These guys and women who come now, they're going to do something. It's just a question of where they'll pull the trigger." Robert Gappa, president of Management 2000, a consulting firm in Houston, estimates that "80% of the candidates our client franchisors are seeing have management experience. They might be smelling that they are going to be right-sized -- or they've been right-sized."
Jerry Shultz and Kathy Miller are typical examples. Shultz spent 23 years with IBM as a manufacturing manager. When Big Blue began stumbling in the late 1980s, he seized on a generous buyout deal -- two years' salary plus $50,000 -- and decided to open his own business. "I lacked the confidence to run a company without some help," he admits. Now, six years later, Shultz owns three Play It Again Sports stores in Arizona and California and has plans to open two more outlets of that franchise, which sells used athletic equipment.
Kathy Miller put in 17 years with NCR and AT&T, ending up as an East Coast sales director. Tired of traveling, she bailed out in May 1994 to run a Primrose School educational child-care center.
The $1 million required to build the school didn't faze her. "When you come from corporate America, you're not intimidated by a million-dollar investment when you're used to a budget of $25 million," Miller says. "I was convinced the numbers would work, and they have." In business only a year, her school in Cary, N.C., is filled to capacity, and she has broken ground on a second school.
Miller, Shultz, and others like them are revolutionizing the franchising scene, and not just on a unit-by-unit basis. To lure and keep such demanding desirables, some franchisors are rethinking, for instance, the support services they offer and how they share the wealth. (Mini profiles of three savvy franchisors appear below.) "There's a relationship change under way," observes Leonard Swartz, director of franchise services for Arthur Andersen & Co., the giant accounting firm. "In the 1960s and 1970s, the franchisor was the king. Now you have advisory councils of franchisees and more teamwork. Good franchisors know that the best ideas come from the folks at the cash registers, and they listen to them."
