Tuesday, February 23, 2010

Franchises Vs. Chains

Living With Chains
For entrepreneurs looking to buy a franchise, here's one thing to prepare for:
There are entrepreneurs. And there are franchisees. And they aren't necessarily the same thing.

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The most obvious difference: People who buy into a franchise play by somebody else's rules to reduce their risks and boost the chances of success. But entrepreneurs often thrive on risk and want to chart their own course to success or failure.

These days, of course, franchising no doubt looks alluring to entrepreneurs who like the idea of reducing their risks by following a path others have already forged. But do they know what they are getting into? Are they prepared to deal with the restrictions of a franchise?

To understand better the gap between the two worlds, we spoke with someone who's navigating both: Tom Simonian. For more than a decade, the 50-year-old Mr. Simonian has run his own business in West Chicago, Ill., providing corporate-incentive programs. Then, last year, he decided to buy a dry-cleaning franchise from Cleaners Depot Franchise LLC of Westchester, Ill., for a little over $1 million. He plans to buy another location this year.

To be sure, Mr. Simonian had some idea what he was getting into: He got a close look at the franchise world as a supplier and consultant to McDonald's Corp. for 22 years, 14 with his own company, Incentives Inc.

The Wall Street Journal spoke with Mr. Simonian about the pros and cons of using somebody else's playbook and how entrepreneurs can prepare themselves for the culture shock. Here are edited excerpts from the conversation.

THE WALL STREET JOURNAL: What has it been like to become a franchisee after running your own business?

Tom Simonian, who has run his own business for more than a decade, bought a dry-cleaning franchise last year

MR. SIMONIAN: I've been on my own for so long, it's hard to fall within the confines of a structure that you don't have control over. It's good that they've got most of the answers for you. They've experienced it, and they've got the systems all in place. From that aspect, it's very easy. You don't have to go through, like I did when I started my business, a lot of trial and error and making a lot of mistakes to find which path to go down. The path is already paved for you.

You have a supportive team at the corporate headquarters, you have training, marketing, legal support. You have all that support that you wouldn't have if you were on your own, or if you do, it comes at a heavy cost. In the franchising world, you're sharing those costs with other franchisees.

You're not out there alone. If you're short on some inventory, you can call one of your neighbor franchisees and pick up some inventory items. Or if equipment goes down, I've got the franchiser's maintenance staff.

I thought maybe I would be troubled by wanting to do things and then them not allowing me to do it. Although that's happened, I've never wished that I hadn't gotten into franchising because I'm handcuffed. All the positives far outweigh the negatives.

The franchise world is not the world for an entrepreneur. An entrepreneur wants to go out there and either take something to rework it and make it better, or start from scratch and build it. A true entrepreneur wants to do everything and to control everything.

WSJ: What was it like getting orders from a corporate headquarters initially?

MR. SIMONIAN: It has its pros and cons. The pros are that they've got a well-established and tested system, processes and procedures. The cons are that you have to march to their orders, and you have little opportunity to stray from those conditions that are set for you. You don't make the calls. Corporate makes the calls. But there are areas also of middle ground where both parties come together and work together to make the call. And within your franchise, you have the ability to call the shots on the micro level—the day-to-day management of your business and your employees.

Slow to Change
WSJ: Tell us about a time you strayed from the blueprint.

MR. SIMONIAN: We were going to do some local neighborhood marketing with direct mail that we had designed, but they didn't approve. We had to go back to the drawing board with their creative, marketing and advertising to put an approved piece together.

When you own your own shop, you can move quickly and make the decisions and implement the process and procedure that you want in place. When you're dealing with multiple locations, a franchise agreement and a brand, it limits what you can do. And even more importantly, how quickly you can do it.

At McDonald's, the organization is so large, when you want to make a change, it's like turning the Queen Mary in a bathtub. We're no McDonald's. We have only 32 locations, but as you get larger, the controls have to be stricter to preserve the integrity of the brand.

WSJ: What is it like trying to get your own ideas across while still sticking to the script?

MR. SIMONIAN: Because the franchise is so small right now, there are minimal layers between you and the owners. You have access to the powers that be. You can call and talk about it. If it's a good idea, they will move forward with it.

For example, they're instituting a new customer-service process, and they're asking us to be the pilot store. They came up with a process that they thought would work, and we have refined it and found things that would not work. They have listened. But that's part of how they develop a new process before they roll it out. It will have been tested inside and out to make sure that it works and generates the best results.

Ten years from now that luxury won't be there. When Ray Croc started McDonald's, the first 30 franchisees probably had Ray's phone number, but today, good luck trying to get that kind of direct access.

An Open Mind
WSJ: What kind of approach does shifting from independent to franchisee require?

MR. SIMONIAN: If you have trouble with someone else making all the decisions for you and having no wiggle room at all, get involved in a ground-floor opportunity, where there's minimal amount of layers between you and the people making the decisions, so that your word can be heard.

If you're getting into a McDonald's-type franchise, you're following the letter of the law, no ifs, ands or buts, period. If you can't live with that style, which is very tough for many—it would be tough for me—then stay away from the big, already established franchise operations.

WSJ: What was hardest about becoming a franchisee?

MR. SIMONIAN: You're dealing with a brand, and that brand is such a protected item, you have to be conscious at all times of whatever you say or do, because it could be a blemish on the brand. It's difficult for an entrepreneur not to say, "The hell with this!"

WSJ: What mind-set should you adopt?

MR. SIMONIAN: Have an open mind. I like to try new things. I am in my nature just very open to new things, to change, to cutting-edge technology. I'm always willing to listen and look, because you don't know where the next opportunity is.

WSJ: Any advice for business owners considering a franchise?

MR. SIMONIAN: Understand the concept of franchising before anything. They have rules and regulations, terms and conditions, processes and procedures that have got to be followed. Or there are consequences, and they're usually punitive. That's the way the game is played. If you can't follow their rules, then don't buy it.

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