November 2007
Franchising:
Fast track to starting a business
By Andrea McGovern

Jonathan Kelley, owner of J's Pizza Market in Mentor, knew eight years ago when he opened the store he would one day turn his take-and-bake pizza idea into a franchise.

Jonathan Kelley has spent eight years trying to figure out all the mistakes he could make in his business – and all the ways to do it right. By learning what not to do, the owner of J’s Pizza Market in Mentor has created a business that is streamlined and functions so well it can be duplicated anywhere. He is creating a franchise.

“I opened the business in 1996,” Kelley said. “Franchising this business was in my mind right from the start. From day one, everything we did we looked at from the perspective that we wanted to make this business easy to operate.”

He said it wasn’t until the past two years that everything started to click. J’s Pizza Market features take-and-bake pizzas, sandwiches and salads.

“Take-and-bake pizzas have been a popular idea on the West Coast, particularly in the Pacific Northwest, for a long time,” Kelley said. “The idea of this business is to keep it small and compact. That makes the store easy to run and inexpensive to operate. The fixed costs are lower.”

Kelley is about to open a new store on Ohio 615 in Mentor. This will be the model store for marketing the franchise. The new location has a stone hearth oven. Cooked pizzas now will also be offered. Previously, cooked pizza was only available in slices.

“The concept is still the same,” Kelley said. “It’s a three-revenue system, serving lunch and dinner, and offering off-site catering. This is the model that can be repeated. I was only 26 when we first opened. Most people don’t have the time to do that. Getting to this point cost me eight years and tons of money.”

Once he felt the business was ready, Kelley began the franchising process.

“We created manuals documenting the way to duplicate the business,” he said. “The most expensive aspect of this is the legal cost.”

The Uniform Franchise Offering Circular (UFOC) and the Franchise Agreement had to be created.

“Every franchise in the U.S. has to have the UFOC,” Kelley said. “It contains everything you do as a franchise. You need a franchise attorney to draw up the contract the franchisee will sign when you enter into an agreement. Each state has its own rules and regulations. In each state you will do business, your paperwork must be on file and updated every year. Then you can actively sell your idea.”

A growing market segment

For the aspiring entrepreneur, franchising offers the advantages of a proven business system, a recognizable name and product, training and ongoing assistance. Franchising now spans 75 different industries, provides 18 million American jobs and generates an overall economic output of $1.53 trillion, according to the most recent study by PriceWaterhouseCoopers for the International Franchise Association.

The growth of franchising has been spurred by several market trends, including the approach of retirement age for the Baby Boomer generation. Corporate layoffs and buyouts also have had an impact, according to Joel Libava, whose Woodmere business, Franchise Selection Specialists Inc., helps would-be entrepreneurs find the franchise opportunity to meet their needs, goals and personality.

“It’s increasingly common for Baby Boomers to opt for the working rather than the retirement route,” Libava said.

He said a large percentage of those who do plan to stay at their jobs until they reach retirement age will opt to launch an entirely new career in their mid-60s. Corporate layoffs and buyouts also have created demand for business opportunities.

“I’ve had people work with me for a while after a layoff but choose instead to get another job, then return and buy a franchise as long as 12 years later, after another layoff,” Libava said. “They’ve had it and refuse to be at the mercy of corporate America anymore.” There is another appeal to franchising for those looking for a second career, he said.

“Running a franchise as a business on the side is becoming very popular,” he said. “With the use of technology like online real-time tracking of store activity, absentee owners are able to have a business that doesn’t tie them down. Since 9/11 people have begun to prioritize quality of life above income. For these people, semi-absentee ownership is an attractive option because it allows them to pursue other interests like time with family and hobbies.”

Cutting the corporate ties

The search for opportunities away from corporate life is not limited to second career seekers. Wanting to spend more time with his young family led David Chase, owner of Willoughby’s Proforma CPW, into the franchise world.

“I had worked in national accounts for a large corporation, traveling North America calling on large corporations,” he said. “I sold replacement parts for printing presses. I was living from a suitcase. I had two little kids, but every Monday I was heading for airports. I began to think there had to be a better way to make a good living.”

Chase began to look into franchise opportunities.

“I did a lot of due diligence,” Chase said. “I looked at everything from pizza businesses to convenience stores. I also went to a number of conferences.”

Ironically, although he had been to a franchise conference in Cleveland, he was introduced to Proforma, a franchise that was founded in Cleveland by Greg Muzillo of Willoughby, during a conference in Washington, D.C.

There, he ran into a former colleague who was now successfully building a Proforma business. It was a year and a half from the time Chase decided to leave his job until he actually opened his business.

“I was looking for something that would utilize my marketing skills,” he said. “I was a professional marketer. That was my strong suit, selling. There are a zillion franchises out there, but they are mostly consumer services. There are very few business-to-business opportunities.”

He said this opportunity was truly business to business.

“With Proforma I could take my marketing skills, talk to existing business owners and build a business based on my relationships with clients. One of the beauties of this franchise, for me, is that you do business with the large companies in your area. I now work with some of the largest companies in Lake, Geauga and Cuyahoga counties.”

In his corporate life, Chase had started a manufacturing operation in Newbury, which gave him a number of corporate contacts in the Cleveland area. He had been responsible for sales in the northeastern U.S., so he had many contacts regionally as well. The last piece that made this opportunity work well for the family was the fact that Chase’s wife Carol had been employed at a Lake County agency for a number of years. “She was a big help in that her employment covered health care benefits,” Chase said.

Chase said Proforma, which currently has 600 franchises in every state and Canada, is headquartered in Independence. The company offers innovative print and promotional products.

“We grew a significant business by working through Proforma,” Chase said, noting that he has a small office with very little equipment. He said all his administrative requirements are handled by corporate headquarters, including lead generation, bill payment and collections. “This frees me to do what I am very good at, selling,” he said.

In 14 years, Proforma Sixcom has acquired six other printing and distributing companies, merged with a couple of companies and taken on several partners.

“I’m a glorified sales guy who owns his business and does really well,” Chase said.

Finding the right opportunity

Finding the niche that will suit their own particular skills will increase potential franchisees’ chances of success in the new endeavor. The Federal Trade Commission’s Consumer Guide to Purchasing a Franchise counsels careful consideration of which skills or education may be required in the business and how well they jive with your skills, technical knowledge, talents and experience managing a business.

They also recommend working with an attorney, business consultant and accountant during the investigation process. Potential franchisers need to thoroughly understand what they are getting into.

The costs Franchise fees, which can run from the $30,000-35,000 range (as does a Proforma franchise) to $200,000 or more for a big-name restaurant, are expensive, but they are not the total cost of owning a franchise business. There are also ongoing fees such as royalties and advertising fees.

Also to be considered are the contractual restrictions placed on the business by the franchiser, which include site selection, design or appearance standards, products and methods of operation, such as hours open. When the corporation changes design standards, franchisees are obligated to follow suit, at additional cost. The typical franchise contract term is 20 years. At that point many of the terms may change, with considerable cost to the franchisee. Territories may even change, creating a more competitive environment.

The benefits

Careful planning and research and good advice will inform the would-be franchisee and uncover franchise plans with undesirable restrictions and costs. Replicating an established business idea has helped thousands of entrepreneurs get a successful jumpstart.

“Franchising is very powerful,” Kelley said. “Someone else has made all the mistakes. Almost as soon as you open the doors you can start to operate a successful business.”

He said that although the business may not make money right away, it’s always a huge advantage not to have to re-invent the wheel.

Andrea McGovern is a Mentor freelance writer.