Franchising: A low-risk way to get into, grow a business

Prospective franchisees, franchisers often turn to consultants to find the right fit, market their budding brands

Larry Oakes turned to franchise ownership because he wanted a proven business concept.

Nick Carter saw plenty of upside potential in a fragmented commercial cleaning industry and decided to franchise his company.

Neither midstate business owner decided to go it alone, however.

Both worked with regional franchise consultants who helped them navigate a path that can be filled with detours.

People like Oakes who know they want to own a franchise have to sort through thousands of registered brands — from fitness studios to fast-casual restaurants — with upfront investments ranging from less than $50,000 to several million dollars.

What can they afford and what fits their personality or skill set? Are those franchises looking to expand into their area?

Entrepreneurs such as Carter have to figure out what distinguishes their business model from competitors, how to standardize and replicate that model and, ultimately, whether it is worth their time and money to expand through franchising.

“Some would be overwhelmed and they just want that one wonderful restaurant or coffee shop. They don’t want to deal with the dynamics of the franchise industry,” said Don Schin, president of Franchise Building Expert, a Camp Hill-based franchise brokerage and consulting company.

But others are jumping in. They see franchises as a low-risk way to start a business, Schin said. And for expanding brands, franchising offers a faster way to grow into new markets without tapping their own capital.

Central Pennsylvania, which is home to some of the fastest-growing communities in the commonwealth, has become a bigger target for growing franchises in recent years. It is creating more opportunities for would-be business owners and aggressive entrepreneurs.

Jobs at U.S. franchise companies are expected to grow by 3.1 percent this year, which should outpace projections of 1.9 percent for the non-farm private sector as a whole, according to the International Franchise Association.  Over the last five years, the average annual job growth in the franchise sector was 2.6 percent.

Early retirement

Amy Spangler

Oakes, who took an early retirement from Hewlett-Packard Co. in 2012 at the age of 47, was given a transition assistance package that contained a flyer for franchise matching services from a company called FranNet.

It was the nudge he needed, he said. “I was looking at franchising anyway. I wasn’t sure I could come up with an idea that was marketable.”

Over the years, he made note of unique dining experiences, he said, and saw himself as an owner of a restaurant franchise.

But the costs for a restaurant franchise were too high. FranNet and regional consultant Ed Hynes helped Oakes compare cheaper options.

Those options included a hair-cutting brand, a junk-removal service, an employment agency, a handyman service for senior citizens, a gourmet popcorn brand and a therapeutic massage business.

While most people associate franchises with fast-food and retail, there are other options to fit people’s goals, Hynes said.

“Most franchises are not retail,” he said. “They are B2B services companies … painting, roofing, emergency restoration, cleaning services.”

The target candidate for franchising is often someone in their mid-40s who has worked in the corporate world and wants a change, Hynes said. Or it’s someone who just got laid off.

Companies such as FranNet play matchmaker. Oakes’ strength was running technical projects for HP. He also was a colonel in the Army Reserve but was looking to retire from that role.

His choices came down to Doc Popcorn and Elements Massage.

He settled on Elements, a national massage therapy brand that began franchising in 2006, because of the support and leadership team it offered. He purchased two franchise units in 2013, opening first in the Colonial Commons Shopping Center in Lower Paxton Township in 2014. He plans to open a second location in the Camp Hill Shopping Center.

Business so far has been strong, Oakes said. He would like to expand beyond two Harrisburg-area locations because he believes the steady population growth of the area can support it.

From his own franchise experience, he knows other brands also are taking note of the midstate. Cumberland County was the fastest-growing county in Pennsylvania between April 1, 2010, and July 1, 2015, with population growth of 4.6 percent. And Lancaster County added the most people in the midstate: 17,176 residents.

But the biggest challenge for Oakes, like many new franchisees, is balancing working capital to cover payroll, taxes and rent while trying to add locations.

Finding employees also can be a challenge, depending on the type of franchise. Casual restaurants, for example, are now competing for talent with more fast-casual brands and local eateries and brewpubs.  

Expanding out

For entrepreneurs such as Carter, who have started businesses in Central Pennsylvania, the challenge isn’t understanding the local market. It’s how to expand into new markets.

Over the last seven years, Carter built his Mechanicsburg-based Pro Quality Cleaning into a million-dollar commercial cleaning company, with about 60 office customers within about 45 minutes of Mechanicsburg.

In 2013, he began considering whether to create a franchise network for company.

Carter sees the opportunity to attract more regional customers, especially in York and Lancaster counties, but said he doesn’t want to stretch his own staff. To better manage his growth, he’s trying to sell franchise territories, whether to entrepreneurs looking for new ideas or to people familiar with the commercial cleaning business.

But, he admits, selling a franchise is a lot different than selling cleaning services. He’s been working with Schin to help with sales and marketing efforts. Consultants often work with business owners on sales training and franchise operations.

Carter’s goal is to sell exclusive territories across the commonwealth and then branch into neighboring states. He believes that exclusive territory arrangements and a training program will set him apart from competitors. He also knows he’s competing against many other industries for franchisees.

“It’s not an easy industry, but it’s often overlooked,” Carter said.

It’s also a lower-cost option. Carter’s brand has a franchise fee of $25,000 and the working-capital needs are fairly low to start. There is no real estate requirement and cleaning equipment can be purchased in different phases, he said.

“Within 18 months, our goal is six to 12 franchises,” he said. “Our long-term goal, 10 years or more, is to have at least 100 franchises.”

Jason Scott
Jason Scott covers state government, real estate and construction, media and marketing, and Dauphin and Cumberland counties. Have a tip or question for him? Email him at jscott@cpbj.com.

CPBJ Business Events

2019 Business Growth Symposium

Wednesday, April 03, 2019
2019 Business Growth Symposium

2019 Healthcare Symposium

Friday, May 10, 2019
2019 Healthcare Symposium

2019 Women of Influence

Monday, June 24, 2019
2019 Women of Influence

2019 Real Estate & Development Symposium

Wednesday, August 07, 2019
2019 Real Estate & Development Symposium