Sep. 6, 2006 - Starting a Business? How About a Franchise?

Franchises offer proven business model, success rate

By Woody Westlake

In many of the Wilmington area's commercial districts, franchises take root and grow into successful businesses, sometimes even spreading into new, fertile developments.

Dan Hagin is a franchise consultant/broker and president of Leland-based FranchiseUSA!, which represents more than 200 franchisors. One key to cultivating a successful franchise business, he noted, is making sure it's a good fit. "I'm selling a lifestyle as much as a business, and that lifestyle can include more freedom, more income, greater security – even relocation," Hagin said. "I make many people happier than they were."

The concept of franchises dates back to the 1800s when the Singer Sewing Machine Company was looking to raise capital for expansion. The company could not afford to develop a chain of retail outlets to sell their revolutionary machines, so they sold the sales rights to independent entrepreneurs.

More than a century later, there now are 760,000 franchised businesses in the United States employing nearly 9 million people, according to the International Franchise Association (IFA). Franchises contribute $624 billion to the U.S. economy and account for more than 40% of all retail sales activity.

Franchises don't just put more money into the economy – they also are financially beneficial to the owners. In 2005, franchisees earned an average of $91,630 compared to a national average of $34,586. According to the IFA, the average net income of a single-unit franchise is $76,000 and is $142,000 for a multiunit franchise.

IFA statistics also indicate that 93% of franchisees feel that owning a franchise gives them a competitive edge in business. In addition, IFA research shows that 88% of franchisees recommend franchise ownership over nonfranchise and 65% would purchase the same franchise again.

"Planet Fitness gets a royalty from each franchise, so you know they want us to succeed," said Shelley Choquette, co-owner and manager of the new Planet Fitness health club franchise on Kerr Avenue. "They have shown us proven techniques for everything, including site selection, interior layout and design, financial procedures, staff selection and management, radio/TV and print advertising – you name it. Their training was excellent, and they are always a phone call or e-mail away."

Proven track record

But perhaps the greatest virtue of franchise businesses is their stability and longevity. A 1999 study by the U.S. Chamber of Commerce found that of all franchises opened during the previous five years, 97% still were operating and 86% still were under the same ownership. It's a very different picture from the Small Business Administration's (SBA) findings that 62% of non-franchise businesses, which opened from 1978 to 1998, failed within six years.

"Franchises are much more likely to survive," said Matthew Magne, director of Cape Fear Community College's Small Business Center.While he doesn't get frequent inquiries about starting franchises, Magne said a new trend is for retirees, who have a nest egg, to start a franchise business. In November, the Small Business Center will host a free class for people who are considering owning a franchise. The instructors will be Tom Barber and Kathleen Keefe, consultants with FranNet.

According to the class description, franchises are six times more likely to succeed than a non-franchise small business.

When Magne does get questions about franchises, he refers them to Barber, Keefe and Hagin. "Franchises succeed where similar, non-franchise businesses fail because the franchisor is given a proven business model to work from and also because franchisors screen candidates carefully," said Hagin. "Prior experience in a particular field is of less importance than the ability to understand business systems and to work well and lead others."

A native of Florida, Choquette had in-depth experience in running restaurants and other hospitality industry businesses, but she had no experience running a health club. She said that didn’t matter because the training and support she has received from Planet Fitness got her up to speed quickly. "We are already considering at least one more Planet Fitness franchise," she said. "We have gotten through the learning curve and know what we would do differently, but we are very pleased with the decision to go with Planet Fitness. It has already exceeded our expectations."

Port City franchise

Besides Planet Fitness, Wilmington is home to numerous franchises of national chains, including McDonald's, Hardee's, Gold's Gym, Hilton, Quality Inn, Quizno's Subs, Domino's Pizza, Chili's, Subway, V2K Window Decor and many, many others.

There also is a national, and now international, franchise company headquartered here. Port City Java is the brainchild of Don Reynolds, who opened his first coffeehouse on Front Street in downtown Wilmington in March 1995. Reynolds had a background in the multi-unit restaurant business, having been one of the founders of an Asheville-based chain called McGuffey's. He later sold his portion of the restaurants and moved to Wilmington to pursue interests in real estate and the development of a single-unit restaurant.

Unlike his previous ventures, the Port City Java concept lent itself to franchising, and in 2004, the company sold its first franchise in Florida. "I conceived Port City Java as a multi-unit company, and franchising was a natural adjunct," Reynolds said. "We have been successful in large part because we maintain tight controls and handle all functions in-house."

The company's corporate functions and corporate staff of about 170 are all located at its Market Street headquarters. Reynolds admits that he has to look outside of the Wilmington area to find the management talent he needs, but all major management functions are handled in-house, including the company’s marketing and advertising activities. Even its coffee is blended and roasted in Wilmington.

Unlike some other franchises, Port City Java does not use franchise brokers or consultants to spread the word. Reynolds feels that it takes someone directly involved with the company instead of a broker who can represent hundreds of franchise opportunities, including competitors. 'No one can tell our story as well as we can,' he said.

Port City Java now has 14 locations in Wilmington – some owned and operated by the company and some as franchises. In addition, there are 38 franchises in 10 states and the District of Columbia. The company also has gone international with one franchise open in Saudi Arabia and others in development in Costa Rica and Indonesia."We didn't solicit the international business," Reynolds emphasized. "They came to us. Our track record and reputation are very good. We are optimistic about the potential overseas."