Newer Can Be Better
A Look at the Strongest Up-and-Coming Franchise Brands
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There are a variety of reasons people seeking to be self-employed purchase a franchise instead of creating a business from scratch. The primary one is that franchises tend to have a higher success rate than start-ups do because they offer a blueprint for success— proven systems and ongoing support.
“After working on Wall Street for 23 years, I had the opportunity to accept a severance package. I had seen too many Wall Street guys in transition waiting around for another job, often for a long time, and knew I wanted to have my own business. A career coach said that starting one from scratch fails 90% of the time and that franchises had a much higher success rate because of the support structure. He gave me four franchises to look at. I threw out two immediately and went to the discovery day for the other two. When I met the CEO of 101 Mobility, I knew it was the franchise for me for several reasons. With 10,000 people a day turning 65 the marketplace is huge, the size of the territories and price point really appealed to me, and I’d be able to give back to people who are facing desperate times,” says John Michielini, who opened his 101 Mobility franchise in August of 2013 in his New York territory.
“At first I thought I’d add a mosquito and pest control division to my existing lawn care business, Southern Lawn,” says Steve Clark, who purchased his Tennessee based Mosquito Joe franchise in January 2014. “I’m glad I didn’t because it took me eight years to reach $250 thousand in sales with Southern Lawn and we plan to hit that same figure with Mosquito Joe this year. It’s clear that Mosquito Joe’s existing systems trump me trying to figure out what to do on my own. In fact, I’m now applying them to Southern Lawn.”
“It’s a lot of work to have a franchise, but it would have been even more work if we tried to create a similar business on our own and it would have cost more, since the tools and infrastructure wouldn’t be there for us,” says Pinot’s Palette franchisee, Reed Alewel. He and his wife, Judy, left well-paying corporate jobs to open their two franchise locations in the Las Vegas metropolitan area.
ESTABLISHED VS. EMERGING FRANCHISES: THE EARLY BIRD GETS THE WORM
Franchisees that invest in a newer concept tend to be less risk averse than those who are only interested in franchises that have been around longer. They often see opportunity where others see risk and have confidence in themselves and their ability to make things work within a franchise system that may still be working out its kinks. The potentially greater risk franchisees of emerging franchise concepts take on is often offset by their ability to obtain larger territories and more locations for lower fees than those who come on board later.
“Franchisees who invest in an emerging franchise get in on the ground floor, pay lower start-up costs and are part of creating the brand model,” says Amy Wasney, Director of Operations at Men In Kilts Window Cleaning. “As an emerging franchise we need to ensure that not one franchisee falls by the wayside. We do so by listening to our franchisees input and ideas for better growth. Once a franchise system gets larger, these things become harder to do and perhaps not as urgent,” says Ciara Stockeland, COO of MODE, a designer outlet store franchise.
When considering whether you should invest in an emerging franchise versus a more established brand, it might be helpful to realize that just because a franchise has existed longer, does not always mean it is better.
“There are many other fitness franchises that have been around longer than ours, but clearly have a less organized system, a less competitive model and less engaged leadership,” says Ben Midgley, CEO and Co-Founder of Crunch Fitness Franchise.
The Top Emerging Franchises list on page 6 may well have only been franchising for five years or less, but our research indicates they are checking off all the right boxes to establish themselves as long term players. 87% of the emerging franchisees we surveyed replied “Good”, “Very Good”, or “Excellent” in response to: “Overall, how would you rate your franchisor and the opportunity provided by this franchise system?”
HOW DO YOU CHOOSE?
The sheer number of franchises available for you to consider can be overwhelming. There are 40 brands in this report alone. The easiest way to narrow down the field is to seek out goals, visit .
“I recommend that anyone considering buying a franchise work with a franchise broker”, says John Suazo, who co-owns a The Exercise Coach franchise in Colorado Springs, CO with his wife. “Ours spent a tremendous amount of time working with my wife and me in order to learn what we were interested in, how much we could afford, where we wanted to live and much more. Eventually she presented us with five options and helped us evaluate the pros and cons of each. We narrowed our choices down to three with the intent of going to two discovery days. Our broker worked with us through our interactions with franchisors and franchisees during the entire process. If it wasn’t for her, we would not be in the system we are in today.” Suazo and his wife signed a multi-unit The Exercise Coach franchise agreement to open three units within 14-month intervals. They opened the first one in March of 2015. Their goal is to have 100 clients by April 2016 and they are above pace to achieve this metric.
Franchise expos are another way some potential franchise investors find their perfect franchise match.
“We went to a franchise expo in New York City and happened upon two companies in the paint and sip industry,” says Pinot’s Palette franchisee, Reed Alewel. “We did discovery day at each and chose Pinot’s Palette due to the simplicity of the business plan and its robust proprietary technology that helps us interact with our customers and manage our business.”
HOW PROFITABLE WILL YOUR FRANCHISE BE?
Financial Performance Representations, which are outlined in Item 19 in the FDD, may give you an idea of how much you will make as a franchisee. It is, however, important to keep in mind that many variables come into play, such as your business experience, how much time and energy you commit to being successful, market area, location, franchisor support and more. Our Franchise Buyer’s Toolkit includes the 3-hour How Much Money Can You Make? online course, available at www.FranchiseBusinessReview.com/Toolkit, is a great tool when it comes to determining how profitable you might be.
“Our previous sign and lighting maintenance business was a small segment of our business. It is seven times larger since we became a YESCO franchisee,” says Deters. “Through its unique lead generation program and relationships with national chains, YESCO generates business for us.” Deters believes that the price advantages YESCO’s purchasing program has provided have contributed greatly to his profits and cover the 6% royalty fees he pays. He states that becoming a YESCO franchisee has also made his revenue, which previously was impacted by economic and seasonal changes, more predictable since each signage and lighting component has a predictable life. In addition, unlike custom sign fabrication clientele, Deters says he receives income from his YESCO clientele every few months. “Whenever they need interior or perimeter lights fixed, we get a call.”
Mosquito Joe franchisee Clark also says that becoming a franchisee has helped him successfully contend with the seasonal aspect of his pre-existing lawn care business. “My first year goal was to make forty thousand in sales, instead we did one hundred thousand,” says Clark. “We anticipate the business will make a 15% profit next year and be making a 25% profit by the fourth or fifth year.”
How involved your franchisor is in your success will have a significant impact on your financial performance and profitability.
“Performance monitoring is a staple of what we do. We have daily performance monitoring and quarterly financial reviews for all clubs. Surprisingly, some of the largest franchisors in our space don’t even pull their franchisees’ P&Ls (Profit and Loss income statements) which means they have NO clear visibility on the profitability and true performance of their clubs and no means to have a meaningful review with their franchisees,” says Midgley. “We have in-person visits from a member of our team to all locations annually as well as a fully integrated secret shopper program. We are constantly monitoring the membership blends of all of our clubs to be sure that their average dues are trending properly. We also monitor all social media monthly to help the franchisees manage their overall customer satisfaction.”
“We make a tremendous effort to increase profitability for our franchisees. We understand that if they are successful, we are successful,” says Stockeland of MODE. “We receive weekly store reports and monthly P&L statements from each of our franchise locations that we compile and analyze on a monthly and quarterly basis. After reviewing the data internally, our Franchise Relations Director visits with each owner to discuss their highs and lows, their goals, and their struggles.”
Despite buying into a strong system, it’s important to have a financial cushion to support your business and yourself until your franchise is stable and profitable.
“My wife, daughter and I all manage various aspects of our two franchises,” says FirstLight HomeCare franchisee Danny Feldman. “We were able to meet our expenses of our Mobile, Alabama location, which we opened in September 2013, within four to five months. None of us took a salary the first year. My wife and daughter took a nominal salary in year two and are taking a ‘less than market rate’ salary today. By next August their salaries should reach market rate.” Feldman, who has a successful law practice, has not received a salary for his FirstLight HomeCare work, but will do so. He believes the business will be more profitable now that his team’s focus, which was initially on getting their Mobile location successfully off the ground, has shifted to growing their Birmingham location, which they opened in October 2014.
“My business was self-sustaining by year one and started to show a profit by the end of year two,” says 101 Mobility franchisee Michielini. “As I enter year three, I plan to hire more sales and marketing staff as well as installers.” Michielini says between year one and two, his business generated 25% more revenue. He is hoping for a 30% to 40% increase by the end of his third year in business. Michielini did not take a salary for two years and instead reinvested all the profit back into the business while living off private investments. He will be taking a salary in the third year.
IS FRANCHISING RIGHT FOR YOU?
Savvy franchisors know that the health of their systems relies heavily on their selecting the right franchisees. Every franchise company has specific criteria for who they feel will succeed in their business.
“We look for franchisees who have solid character, good business sense, and a passion for the industry that we are in,” say Midgley of Crunch Fitness Franchise. “We ask ourselves if the person would be enjoyable to work with and add positively to the culture we have created with our franchise partners.”
“We only consider potential franchisees who have an entrepreneurial spirit, are hard-working and embody our core values,” says Wasney of Men In Kilts Window Cleaning.
Once you know what a franchise is looking for in a candidate, it’s crucial to dig deep within yourself to determine if you would be a good franchisee.
Do you have the necessary grit? Success does not come without a tremendous amount of work and accountability.
“The start-up phase of any new business in any market is not for the faint of heart. Starting a business is exciting, but never underestimate the focus, faith and effort that are required to succeed during the start-up phase of a business,” says You Move Me CEO, Brian Scudamore.
“You’re sticking your neck out and assuming a lot of risk when you open a franchise. It’s really important to have the funds available and the grit to keep at it,” says Pinot’s Palette franchisee Judy Alewel. “You don’t want to be in a position of choosing between investing in the business or making your house payment.” To mitigate their risk, Judy stayed in her full time nursing job for a year and worked on the business at night while her husband, Reed, left his job as a VP of Sales Operations for a gaming company to work on it full time.
“First time franchisees need to be aware that although they are buying blueprint to a business, it is their responsibility to be actively involved in their business and to take 100% ownership of their successes and failures, “says Stockeland of MODE. “They must have a willingness to roll up their sleeves every day and work with an ‘all hands on deck’ mentality.”
Do you have enough patience? From the time you sign the franchise agreement to the time you make a profit varies greatly from franchise to franchise.
“We were in business for four weeks before we got our first client who only needed four hours of service a week. We got our second client two months in, who also only needed four hours of service a week,” says FirstLight HomeCare franchisee, Feldman. “July 2015 was our best month. We had 2,100 hours of service. Essentially we went from eight hours of service after being open for two months to 2,100 hours of service after 22 months.” Feldman feels like he and his family have only touched the tip of the iceberg when it comes to growing the business and is shooting to increase growth by 1,000 service hours a week within a year. He finds the volatility in hours to be very challenging since it impacts revenue as well as his company’s ability to maintain good employees.
“It will take time to build your business. You must be patient,” says Pinot’s Palette franchisee, Judy Alewel. “We opened in August and did not have our first sold out class until December. We started to break even six months in.”
Can you follow a system? Most successful franchise owners are able to balance their entrepreneurial spirit with an understanding that they must adhere to the franchisor’s system.
“If I could offer one bit of advice to new franchisees, it would be that you bought a franchise for a reason. Do not join a franchise trying to make it your own independent business. Be part of the whole and participate in the franchise system to its fullest extent,” says Stockeland of MODE.
“We struggled our first year because we tried to manage our existing signage business and YESCO business with the same amount of staff we had always had, which went against the franchise model YESCO had laid out for us,” says Deters. “Once we staffed up the way YESCO had told us to, our sales exploded.” Deters says his two companies share administrative and HR staff, but that each has dedicated sales people.
“If you think you know more than the franchisor, don’t go into franchising,” says Dale Wasem, who along with several partners, owns seven Taziki’s Mediterranean Grills in the Nashville, TN metropolitan area. “Taziki’s Mediterranean Grill already has best-in-class policies, procedures, recipes and more in place. I came in and followed the system and remain committed to doing so.” His advice to prospective franchisees is: 1) Be hands on and engaged in your business. 2) Integrate yourself into the community since building relationships helps your success more than advertising. 3) Select the right location since it will impact your profitability.
Can you handle a 24/7 job? Even though many of the franchisees who were interviewed for this report said their actual working hours were similar to those they had when they held corporate positions, several said the difference is that as a business owner your brain is going 24/7.
“We enjoy more day-to-day flexibility then we did in corporate America, but we think about our business 24/7,” says Pinot’s Palette franchisee, Judy Alewel. “Thinking about work, however, can be fun. We plan events and enjoy talking about how we are going to grow the business.”
“The hardest thing is to shut off the business,” says Mosquito Joe franchisee, Clark. “My phone is always ringing and since my office is in my home, employees come by.” Clark says he believes having an office in your home is a great way to start, but not good for a work life balance since separating yourself from work is harder.
Although people who invest in emerging franchises come from all walks of life, we noted that when we compared franchisees from all franchise sectors with those in the emerging sector there is a greater concentration of franchisees with bachelor’s degrees or higher in the emerging sector (75%) compared to all franchisees (66%). This makes sense since individuals who have worked in the corporate arena, which many graduates do, may well have more confidence in their ability to make things work and therefore be less risk adverse. The faith of emerging franchisees in their business is also highlighted by the fact that when asked to score the “long-term growth opportunity for my business” in our Franchisee Satisfaction Benchmark Survey they selected “very strong” 40% more frequently than all franchisees who responded across all brands.
SIGNING ON THE DOTTED LINE
When it comes to making the final decision regarding which franchise is best for you, it will come down to two factors: what you discovered during the due diligence process and your gut instinct. You will need to believe in the concept, have faith in the team that is driving it, and feel it will fulfill both your business and personal objectives.
“Take your time and do your research. Shop the business that you are interested in and all its competitors,” says Midgley of Crunch Fitness Franchise.
Once you decide you are ready to sign on the dotted line and get started in franchising, you will most likely have two major hurdles to overcome. The first will be finding the funds necessary to purchase the franchise. The median investment range for the emerging brands we surveyed was $72,500 to $147,000, but many franchise concepts require much more startup capital. How will you get the money? Friends and relatives, home mortgages, veterans’ loans, bank loans, Small Business Association loans and finance companies are all sources of funds and come with different risks. It is crucial that you understand the possible implications of each option. Our Franchise Buyer’s Toolkit, which is available at www.FranchiseBusinessReview.com/Toolkit, provides a detailed franchise funding walkthrough as well as other tools that will help you successfully navigate a franchise purchase. We also offer a full suite of financing services to ensure you get the capital you need at www.fbr50.com/franchise-financing-options/.
“There are ample funding options available to potential franchisees who have a good credit profile. The challenge is that it isn’t always easy and often takes time to navigate the lending process,” says Midgley. “In our case, franchisees we have invited to join our system can access our own vendor backed Crunch Fitness Franchise funding pool, which consists of tens of millions of dollars. It enables them to quickly obtain financing at some of the most aggressive rates and terms in the market.”
The second will be deciphering the overwhelming amount of paperwork ranging from the FDD, a potential lease, and the franchise agreement.
“The biggest adjustment for many people who have never been in franchising before is simply signing the franchise agreement. Most franchisors don’t allow the agreement to be modified and this can make a franchisee uncomfortable,” says Midgley. “In addition a lot of franchisors have 700 to 1,000 page FDDs that prospective franchisee should read and understand before they sign an agreement.”
Many franchisees engage the services of professionals to help them understand and get through the paperwork that stands between them and franchise ownership.
“Getting to opening was a long process,” says The Exercise Coach franchisee, Suazo. “I hired a franchise lawyer to help me review, understand and ultimately help me negotiate my franchise agreement. I also hired a real estate attorney to review the lease agreement. Not having owned a business before, my feeling was that paying lawyers thousands of dollars was well worth it and mitigated my risk.”
Once you decide to open a franchise, it’s important that you, your family, and your friends know it will require most of your time and energy.
“You’ll have to commit yourself 100% to the success of your business, especially in the first two years. This perseverance and momentum will allow you to build something great over the long term,” says Scudamore of You Move Me.
Some franchise concepts require more time than others.
“Until you get to where you are paying your bills, you’ll probably be working 60 to 70 hours or more a week,” says Wasem of Taziki’s Mediterranean Grill. “Once you can pay them, you can go down to 50 hours a week.”
“The Exercise Coach’s corporate office recommends that its corporate and franchisee owned locations should close on all major holidays and every Saturday afternoon through Sunday. This enables my wife and I, our staff, and our clients to have some time to relax,” says Suazo.
While income potential of a franchise business may be your biggest concern, many franchise systems offer non-monetary rewards as well.
“I enjoy hearing the amazing stories our clients share,” says FirstLight HomeCare franchisee, Feldman. “It is also very rewarding to help them and their families by enabling them to stay in their homes and feel like they are not alone.“
“The flexibility is great. I don’t have to be in the office all the time because I have a full time office manager and technician,” says 101 Mobility franchisee, Michielini. “I can work from home and make my kids’ games.” His advice to franchisees is that investing in staff helps you grow your business faster.
Pinot’s Palette franchisee, Judy Alewel, says “It’s very rewarding to see our guests leaving with big smiles on their faces because they had a phenomenal experience.”
In the end, investing in the right franchise could turn out to be the best business decision you’ve ever made.
“I know that every hour I work is for my family’s future. It’s exciting,” says Suazo.
Visit www.FranchiseBusiness Review.com to learn more about the top performing emerging franchises featured in this report, including seventeen that made our Top Emerging Franchises list for the first time— Apex Fun Run, 101 Mobility, BlueGrace, Executive Image, Family Fare, Fit Body Boot Camp, Forever Yogurt, Image One, Live 2 B Healthy, MODE, NYS Collection, Payroll Vault, Supporting Strategies, Teriyaki Madness, The Mosquito Authority, Trumi and Your Pie.