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Gary Prenevost, president of FranNet of Southern Ontario, gives his insight on successful franchises. “Franchising a business model successfully really comes down to systems, systems, systems,” says Prenevost. Owners and operators of Massage Addict, Lori MacKenzie and Chris Harker explain the reasoning behind the success of their recession-proof business model.

Massaging the deal to build a franchise

Mary Teresa Bitti  Jan 23, 2012 – 12:53 PM ET

The pitch: Accessible, affordable massage therapy. That is the concept behind Halifax-based Massage Addict, the latest venture for Lori MacKenzie, owner and president of the company. She hit on the idea when she injured her back a few years ago. “I was seeing a massage therapist a couple of times a month and it became very expensive. I remember thinking, surely if the therapist knew I was coming in for treatments so often they could afford to charge me less.”

A commitment to regular visits at a discounted rate is proving to be an attractive differentiator for the membership-based clinic. Becoming a member at Massage Addict requires clients to commit to one treatment a month at a cost of $59 a treatment, significantly less than $70 to $90 fees being charged by Massage Addict’s competitors, Ms.MacKenzie says. Depending on the clinic, there are anywhere from 13 to 15 therapists on site. “It’s easy to get appointments, even same-day appointments,” she notes.

After launching the business in 2008, Ms. MacKenzie quickly realized she had a recession-proof business model. And that, she says, is largely because 80% of Massage Addict’s members have health-care benefits that cover massage therapy. The demand has been strong from Day 1.

“I had just opened my first clinic in Dartmouth, N.S., and someone came in and assumed it was a franchise and approached me about opening another location in Halifax,” says Ms. MacKenzie, who was a multi-unit owner of a fitness franchise for seven years before launching Massage Addict. “I went through the steps to franchise it and here we are. We now have six locations in Nova Scotia and two in Ontario.”

The franchise fee is $39,000 plus a 5% royalty. “Getting a location up and running costs between $100,000 and $200,000 depending on the area and the lease you are able to negotiate on office space. And we help you with all that,” Ms. MacKenzie says. “We want to be within 10 minutes’ drive of people’s homes.

“We perfected the model in Atlantic Canada and now we are rolling out across Ontario. It’s definitely going to be a national brand but right now we are focusing on Ontario,” says Ms. MacKenzie who is scouting out locations in Ottawa, Vaughan, Richmond Hill and Mississauga.

Ms. MacKenzie and Chris Harker, chief operating officer of Massage Addict, approached the dragons to help bring the brand to the next level quicker. “The exposure the dragons offer was something we just couldn’t pass up,” Ms. MacKenzie says.

The deal: She asked for $125,000 for a 10% stake, valuing the company at $1.25-million. That valuation was based on strong sales and a proven business model and four of the dragons’ jumped on the opportunity to get on board. Jim Treliving was the first to make an offer: $125,000 for a 20% and his franchising expertise set him apart. “When we were standing there it was very exciting to have all those offers coming in, but we just knew that Jim was more the direction we wanted to take it,” Ms. MacKenzie says. “He could see what the model was and he seemed to really get it.” But as is often the case, things can change after taping. “As a direct result of our experience on the Den, we were able to structure an even stronger deal with an outside investor but we are not ruling out any future deal with dragons,” Ms. MacKenzie says. At the time of writing, Mr. Treliving was unavailable for comment.

The expert’s opinion: John Cho, partner in Transaction Services at KPMG Enterprise likes the model and the deal. “It’s an on-trend niche. The aging demographic will help drive demand and even if you’re employed with a plan, massage therapy often isn’t fully covered and these prices are very attractive. I like that she’s targeting small towns and suburbs and locating in strip plazas. The lease rates are more attractive and she’s close to her customer base. This is the type of service that will translate into any geographic area and the franchising model is a good idea.”

On franchising: “Franchising a business model successfully really comes down to systems, systems, systems,” says Gary Prenevost, president of FranNet of Southern Ontario. “The vast majority of franchise systems fail because they didn’t build the correct infrastructure to support their growth. It’s one thing to have a location that’s going well but to be able to duplicate it again and again you need to grow the support in terms of people, point of sale, IT and marketing. It can’t be a myopic view. A lot of franchisors grow their staff after they have a certain number of franchisees. But my position is hire staff, build capacity, service your franchisees so that they can get up and running fast and effectively.”

 

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Some signs point to rise of absentee ownership of franchises, pros buying franchises while keeping jobs

In franchising, trends are coalescing to form what could be the next large-scale movement in the industry: absentee ownership of franchises. Or, as franchise owners themselves call it, “manager-run franchises.”

The developments:

• Skilled, experienced professionals are leaving the corporate world and often turning to franchising to make a living.
• The economy is still bad, and Social Security and retirement funds look shakier than ever, so people are trying to shore up their economic futures as much as they can by changing what they invest in.
• The franchising industry is yielding more and more relatively inexpensive, service-oriented franchises that don’t require an owner to run the business every minute of every day and thanks to the sagging job market, there are quality hires to help manage franchised businesses.
• Prospective business owners can tap into retirement funds for start-up capital that was once unavailable to them and 401k rollovers to finance franchise startups are now one of the most common funding sources.

It all adds up to people who already have jobs pursuing franchise ownership as an additional source of revenue that doesn’t require full-time time investment. And these owners aren’t necessarily gravitating to food concepts, either; they’re exploring the full spectrum of service-based and lower-investment franchises, including child services, day spas, hair care and restoration businesses.

“Because a lot of the people we work with are corporate veterans, they understand how to manage employees by delegating responsibility. For some of our clients, that comes as second nature,” says Jania Bailey, FranNet’s president and chief operating officer. “So it makes sense that they’d want to buy franchises but not necessarily have a hand in every aspect of the business’ day-to-day operation. And that’s fine. You don’t have to do that to be a successful franchise owner.”

When you hear “absentee owner,” the image of a venture capitalist in a three-piece suit might enter your head, but the reality doesn’t match the stereotype. Recently, FranNet of San Francisco President Gordon Dupries closed a pair of multi-unit massage business deals with highly educated Bay Area women with corporate experience and young children.

They told Dupries they were interested in home-based franchises they thought would give them the flexibility to work while taking care of their kids. Dupries told them even home-based businesses would require them to leave the house to meet with clients and spend plenty of time on the phone — not exactly what they were looking for. Dupries suggested they buy massage franchises they could hire managers to run. That’s what both clients did.

“Clients ask me if it’s possible to own a franchise business, or more than one, while holding down a full-time job,” Dupries says. “I tell them, ‘It’s not easy, and don’t think for a moment that you won’t be involved at all, but yes, it is doable.’”

One of the clients, he said, has an MBA from Harvard — demonstrating the education level of people attracted to franchising these days. “If she can’t do it,” Dupries says, “we’d better all hang up our spurs.”

For nearly 25 years, FranNet, based in Louisville, Ky., has been one of North America’s leaders in matching franchisees with franchise companies. FranNet consultants use a specific profiling and consultative process to determine a business model unique to each client’s goals, skill sets and interests, and have matched thousands of happy entrepreneurs to rewarding small business opportunities. If you think you’re interested in a manager-run or any other kind of franchise opportunity, see www.frannet.com.

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These days, only the strong survive in the world of franchising. Some franchises that were promised to be successes have now shut their doors and some surprising ones are still thriving. When getting into the business of franchises, how do you know which direction to take? People like Todd Bingham at FranNet have watched the trends and have a good read on where certain companies are heading. Bingham recently offered his expertise in the Entrepreneur. Read more in the article below.

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Tax rebate would make franchise ownership possible for a larger number of returning veterans

Veterans looking to start their own business may get a big assist from the United States Senate, which is considering a bipartisan bill that would provide tax rebates to veterans who become franchisees.

The American Growth, Recovery, Empowerment and Entrepreneurship Act is cosponsored by Sens. Marco Rubio, R-Fla, and Chris Coons, D-Del., who introduced the legislation in November. The bill proposes to give veterans a 25 percent tax rebate on the cost of franchise fees, up to $100,000.

“The AGREE Act is a meaningful step to find common ground and create a better environment for job creators to start businesses or expand existing ones,” Rubio said in announcing the legislation.

A report by the International Franchise Association shows that for every $1 million of lending obtained by a franchised business, more than 34 jobs are created. The IFA and other organizations are lobbying Congress to help entrepreneurs create jobs for themselves and others by making it easier to borrow the money they need to start and operate a franchise.

The help would come at the same time that federal agencies are aggressively trying to send more of contracting dollars to veteran-owned small businesses. Executive Order 13360, signed by President George W. Bush, directed all federal agencies to send at least 3 percent of their contracting dollars to businesses owned by service-disabled veterans.

“Now is an excellent time for veterans to use the skills they’ve acquired and open new franchised businesses,” said Jania Bailey, COO of FranNet, a national franchise consulting firm. “These incentives make a franchise purchase much easier for veterans.”

With government contracting adding up to more than $425 billion a year, that means there is $12.5 billion that the government is eager to send to veteran-owned businesses.

The U.S. General Services Administration notes, though, that agencies have fallen far short of the 3 percent goal — largely due to the lack of identified veteran-owned small businesses in the marketplace.

The tax rebate on franchise fees would give service members an ideal way to start businesses that already have a proven business model — many of which are well-suited for government contracting work. FranNet can help veterans identify the opportunities.

The AGREE Act also reflects a growing realization in Congress that if the economy is going to regain its strength, something needs to be done to free up money to start franchises and other small businesses. Small businesses have accounted for 65 percent of new jobs over the past 17 years, according to the Small Business Administration.

Want to learn more about the wide range of franchise opportunities available for returning veterans? Schedule a meeting with a FranNet consultant. The advice and guidance is free and may help you start the next productive chapter of your career.

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FranNet blog post featured on Business Reel

Our blog last week about the promising future of franchising despite a recession proves to be a topic people are talking about. Last week, Business Reel featured our post about IFA’s economic outlook for 2012 which showed a tremendous spike in franchising growth patterns. To see the placement, click here.

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IFA report projects positive year for personal, retail products and services

Franchising keeps creating jobs and new business opportunities every year, even in the depths of a recession. Why is that?

Part of the reason: Professionals realize the diversity of opportunity franchising provides, in traditional food franchising or service franchises that meet the growing needs of demographics like the baby boomers, who are only now entering retirement age.

People understand that corporate jobs aren’t as secure or lucrative as they used to be. Since the economic collapse of 2008, professionals have turned more and more to franchising as a way to control their careers and build long-term futures for themselves and their families, options that don’t have to depend on a giant corporation’s stability or government largesse.

The recent Franchise Business Economic Outlook for 2012, prepared for the International Franchise Association by IHS Global Insight, pinpoints in their projections where they expect the growth to occur — and the franchise experts at FranNet, the international network of franchise consultants, are well-positioned to analyze what the numbers mean.

“The IFA report projects strong growth in the personal services and retail products and services segments, which we’ve seen ourselves in the last several years,” says Jania Bailey, FranNet’s president and COO. “People new to the franchising world are usually surprised to find out how many different kinds of franchises are out there, from child education to senior care to car maintenance — and market demand is growing for all of them.”

A closer look at some of the report’s numbers:

• It projects the number of U.S. franchise establishments to increase by 13,928, and for the number of jobs to grow by about 168,000. “At a time when most of the private sector remains stagnant,” Bailey says, “that’s impressive growth.”
• Franchising’s economic output is expected to grow by 5 percent, from $745 billion to $782 billion. “What’s good for franchising is good for the economy,” Bailey says. “Every new franchise creates an average of 10 jobs, and franchising in general is a reliable engine for economic growth.”
• Among franchise segments, the report predicts strongest economic output increases from personal services (6.2 percent increase) and retail products and services (6.1 percent), and business services the highest in projected job growth at 3.6 percent. “Business-to-business franchises are doing very well as businesses adopt leaner, more cost-effective operations and outsource some of their internal services,” Bailey says.
• If anything is holding the industry back from truly outstanding growth, it’s lack of access to credit. The report shows that more than 80 percent of franchisors and more than half of franchisees say limited access to credit continues to impair their ability to expand. “At FranNet, we’ve been advocating hard for banks to loosen credit restrictions to give entrepreneurs a chance to create new businesses and boost the economy at the same time,” Bailey says. “We match clients to the franchise businesses that fit their interests and goals, so they have excellent chances to succeed if they only had access to capital.”

For nearly 25 years, FranNet, based in Louisville, Ky., has been one of North America’s leaders in matching franchisees with franchise companies. FranNet consultants use a specific profiling and consultative process to determine a business model unique to each client’s goals, skill sets and interests, and have matched thousands of happy entrepreneurs to rewarding small business opportunities.

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I hate when people “Reply All” to an e-mail, especially to a large group. Until recently, I prided myself on not doing this. However, I did exactly that a few weeks ago. I replied to everyone in a large mailing list, purely by accident.
At FranNet, we have a group for everyone in the company and on occasion, we receive interesting e-mails in this group. One of my colleagues had sent out an e-mail to the group with a timely topic, and I remembered that I needed to respond to him about something unrelated. Instead of just replying to him, I clicked the Reply All button on the tool bar and sent a very obscure message to the entire group. Let me be clear – I never, ever do that!
Needless to say, I was mortified. I couldn’t even bring myself to send an apology e-mail to the group because there was nothing I could say that would fix it. Now, in all honesty, no one but me probably cared much that I made this mistake. Most people on the list probably shrugged it off as the error it truly was. But this had me considering my actions. I simply moved too quickly, without any thought. This tells me that I have become complacent when it comes to something as simple as an e-mail message.
So, one of my resolutions for this year is to never do that again.
I will be as mindful as possible of the things I do, at all times.
I will do things with purpose, and think before I act.
I will counsel my clients to do the same, especially when it comes to making a life-changing decision such as buying a business.
Wow. That goes a lot deeper than just clicking “Reply All”.

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Number of people voluntarily leaving jobs steeply up

With national unemployment still hovering around 9 percent and “job creation” the term on every politician’s lips, you’d think employed North Americans would be happy to just have jobs — and you’d be wrong.

A recent survey by Right Management, a Philadelphia talent and career management firm, yielded some astonishing results: For the second year in a row, 84 percent of more than 1,000 employees surveyed said they plan to look for other jobs in 2012. The percentage of workers who said they intended to stay in their jobs remained steady, too — at a shocking 5 percent.

Those data take on even more meaning when you consider that huge numbers of Americans, even with the economy in the shape it’s in, are actually quitting their jobs. Nearly 2 million voluntarily quit in May 2011, up 35 percent from January 2010, according to the U.S. Bureau of Labor Statistics.

Voluntarily quit, often without another job lined up.

So what’s going on?

One explanation: Professionals are simply getting tired of the corporate job treadmill, with its rigidity and limited opportunities for advancement, and turning to self-employment through franchising as a way to seize control of their careers and financial futures.

Even in the midst of a recession, the franchising industry has grown at an impressive pace, adding 19,000 units in 2011 and continued growth projected into 2012. The diversity of franchise opportunities continues to grow, too; the industry is adding low-cost, service-oriented businesses to its roster of traditional food franchises.

“In the last couple of years, we’ve helped thousands of professionals burned out from the corporate grind reinvent themselves as entrepreneurs through franchising,” says Jania Bailey, the president and COO at FranNet, an international network of franchise consultants. “The opportunities in the franchising industry are more extensive than ever, and the Right Management survey results and BLS statistics just show that American workers crave the kind of control and growth opportunities franchising offers.”

Right Management surveyed 1,077 American and Canadian employees online from Oct. 15 to Nov. 15. The firm concluded that employees distrust management in their jobs and believe they lack options. Many franchisees cite the freedom of self-employment and the scalability of their businesses as advantages.

“We find over and over that once smart, driven professionals take the plunge into entrepreneurship,” Bailey says, “they never want to go back to working for someone else.”

For more information about franchise opportunities and FranNet’s free services, see www.frannet.com.

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IFA Economic Outlook report forecasts signs of recovery for franchise industry — even in recession

The American franchise industry expects to add nearly 14,000 establishments and 168,000 new jobs in 2012 — the latest indication that American franchising is healthy and growing, even in a sluggish economy.

The news comes from a recent report from IHS Global Insight for the International Franchise Association that predicts growth across the franchise industry in number of establishments, employment, economic output and contributions to U.S. gross domestic product.

The 2012 Franchise Business Economic Outlook projects that the franchise industry will add nearly 14,000 establishments in 2012, an increase of 1.9 percent; and 168,000 jobs, an increase of 2.1 percent. The report also projects 5 percent growth in economic output, from $745 billion to $782 billion; and a 5 percent increase in growth of GDP originating in the franchise sector, from $439 billion to $460 billion.

So why is franchising growing when the rest of the economy remains stagnant?

A lot of it involves a change in the way professionals see their careers. Corporate jobs aren’t as secure or lucrative as they were five years ago, and plenty of corporate veterans have turned to franchising as a way to build secure futures and control their careers after losing or walking away from their corporate jobs.

“The growth figures square with what we’ve seen at FranNet in recent years: People leaving or being forced from their corporate jobs and finding new opportunities in franchising,” says Jania Bailey, the president and COO of FranNet, the international network of franchise consultants. “With each passing year, more and more professionals discover how diverse and affordable the franchising industry is.”

FranNet has grown extensively in recent years as professionals have flocked to franchising; in 2011, American entrepreneurs have opened more than 19,000 new franchise businesses, and FranNet experienced a record year, capped by its inclusion in Inc. magazine’s list of the fastest-growing U.S. companies.

“We’re seeing franchising opportunities open up that would have been unimaginable a few years ago,” Bailey says. “With the economic climate and the projected growth in the industry, there’s never been a better time to explore franchise opportunities.”

For nearly 25 years, FranNet, based in Louisville, Ky., has been one of North America’s leaders in matching franchisees with franchise companies. FranNet consultants use a specific profiling and consultative process to determine a business model unique to each client’s goals, skill sets and interests, and have matched thousands of happy entrepreneurs to rewarding small business opportunities.

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Michael Sipe, an investment banker, entrepreneur and business consultant, worked with FranNet consultants on small business development projects in California and the Pacific Northwest for 20 years. In July, he decided to become a FranNet consultant himself, purchasing the FranNet territory covering Idaho, central and eastern Oregon and eastern Washington state.
The 56-year-old Arizona native also is president and founder of CrossPointe Capital, a mergers, acquisitions and business development firm that helps owners of small and mid-sized businesses with business purchases, sales and transfers. Over his career, he’s worked in civil engineering, publishing, multimedia production, direct sales and other fields — ideal training for a small business consultant responsible for guiding the career paths of other professionals. He’s also active in church and civic organizations in Bend, Ore., where he’s lived for eight years after moving from the Silicon Valley in California.

What’s your professional background?
I’ve worked in civil engineering, publishing, computer simulation, multimedia production, direct sales, business consulting, training and education, manufacturing, retail, real estate – you name it. I’ve started several companies of my own, so entrepreneurship is familiar to me. In the process of buying and selling my own companies, I noticed a lack of a well-developed market for consulting services for small- and mid-sized companies to address ownership transfer issues, which can be very tricky and complex. I founded CrossPointe to help remedy that problem. Over the years, I’ve been involved in numerous professional associations for CEOs and business leaders.

How did you get into franchising? Why FranNet?
I began helping people buy, sell and start businesses around 1991, when I was living and working in the Silicon Valley, so naturally I found myself working a lot with Joan Young, who’s the FranNet consultant for the Bay Area. I always admired the work Joan and FranNet did to help people find new, fulfilling career paths through franchise business ownership and recently decided this was the right path for me at this time. What I see now in the demographics is a huge opportunity to serve baby boomers with franchises — to help middle-aged, high-quality executives who have either sold their businesses or left their corporate jobs involuntarily and have to figure out how to make a living at the standard they’re used to in an economy that’s radically changed. We can help them build some equity, get some cash flow and enable them to control their own financial futures. That’s why I think franchising is the perfect business for me to be in right now.

What are some of the best franchise opportunities in your territory?
One is senior care, of course, because many of these areas are popular for retirees. Also, fitness, wellness and health franchises are very strong in these markets. In general, the fitness quotient of people in these areas is very high. We’ve got a lot of athletes, and plenty of people move to these areas because they love sports. We have a gym franchise that is very strong in Bend, and a therapeutic spa business we represent will be fantastic in all these communities. Education franchises and businesses that relate to kids are very strong because people in these communities tend to be very pro-education.

Do people still have preconceptions about franchising? How do you educate them about the diversity?
They do, but I find that more and more people are realizing how much diversity there is in franchising. The first thing to do is to acknowledge is that people do think of restaurants when they think of franchising. Although they certainly are very viable businesses, for our primary candidates those franchises are too expensive. The challenge is to provide an affordable path to business ownership. Some of our lowest-dollar investments produce the highest return on investment. There are about 3,000 different kinds of franchises, from business services to personal services to pet services. Just about any kind of business people can make money at is franchised.

What advice would you give someone thinking about buying a franchise business?
Anyone who wants to get into business for themselves and starts by looking at a particular kind of business is making a mistake. Start by looking at yourself: What your skills are, what your interests are. That’s why FranNet’s personal profile and assessment tool is so helpful, to help clients figure out first of all whether they should go into business, then whether should they be in franchising, then what might give them the most personal satisfaction. When people are truly satisfied in what they’re doing, that optimizes the possibility of success. That’s the big distinction between a franchise salesperson and a franchise consultant.

What kind of person makes a successful franchisee?
Number one, you really need to have a strong desire to be in business for yourself. Number two — and this sounds contradictory, but it’s really not — it’s helpful if they like to work within a system, within the concept of a team. You’re running the business, but you’re not all alone. With a franchise, you get the safety and security and predictability of a system, but you get to be your own boss. So the wild-eyed entrepreneur who wants to be the next Steve Jobs is not a good match for franchising. You need to be disciplined and coachable and self-motivated, kind of like an athlete. The most successful athletes are self-motivated, but they work with a coach.

What are the benefits of franchise ownership?
I believe it’s the safest and most secure way to get into business and the quickest way to profitability. I’ve started businesses, bought them, sold them, and my experience is that the money you pay up front to the franchisor turns out to be absolutely worth it. You’ll have higher performance that more than offsets the franchise fee and initial expenses because the franchisor provides you with the blueprint for running the business and making it work. The last is the camaraderie you can have with your franchisor and fellow franchisees. It’s often said that entrepreneurship is a lonely path, but it doesn’t have to be that way. You can have great friends and a great team to play on in franchising.

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