Lisa Anter, owner of the Curves franchise in Menlo Park, talks to a customer in early December.
Small-franchise owners weather turbulent economic times
hile other girls were playing with their Barbies, at 6, Lisa Anter was charging 10 cents a cup at her lemonade stand at a lake near her Montreal, Canada, home. The following year she upped it to 15 cents. It would be another 20 years or so before her entrepreneurial instincts fully kicked in and she left the corporate world to open her own business. But Anter didn’t choose to go it alone. Instead she purchased a franchise — in her case a couple of Curves circuit-training gyms — where she could count on a national organization to back her new endeavors. Amos Wu and his wife were concerned about how the economy was affecting Wu’s career as an engineer in Silicon Valley. Just as the
economy was starting to get rocky, Wu opened his first Subway in Palo Alto. And Lewis Knapp, made “redundant” by the Oracle buyout of Sun Microsystems where he’d spent more than 20 years, opted to open his own business — Team Logic IT — which offers computer services to small businesses. All did their research, learning that opening a franchise can take anywhere from $19,000 for Made in the Shade Blinds or Creation Carpets to $1 million for ARCO and AMPM, according to www. franchisesolutions.com. And each weighed the pros and cons of going the franchise route, rather than opening an independent business. Most said they found the corporate support — often in marketing and advertising — filled in vital
gaps. “You can’t be an expert in everything — design, finance, customer service. Nobody is good at everything,” Anter said. But that support comes with a less flexible side. Franchise owners are locked into an agreement with headquarters and must meet certain expectations, including financial ones. “If you need to close, you can’t. ... If they’re unhappy with you, they might not negotiate with you when something happens,” Anter said. But for those motivated by basic disenchantment with the corporate rat race or by the economy, with its mergers, takeovers and layoffs, opening a franchised business can be an attractive choice. Success rates appear to back (continued on next page)
by Carol Blitzer
Amos Wu owns four Subway franchises, all in Palo Alto, including this one on California Avenue. *>ÊÌÊ7iiÞÊUÊ iViLiÀÊ]ÊÓä££ÊU Page 33
Seeking a perfect match
(continued from previous page)
them up: “The No. 1 reason businesses fail is lack of cash for working capital. After 10 years, only 16 percent of existing start-ups are still in business. With franchises, it’s 90 percent,” said Katie Fagan, franchise-consultant for FranNet, a franchise-consulting group in San Jose. What Anter, Wu and Knapp have in common is their choice to pursue their passions, drawing on their corporate experiences to help them run their new businesses — their way.
Franchise options range from yogurt to bus wrapping
Courtesy of FranNet
Joan Young, president of FranNet, and Katie Fagan, a FranNet consultant, match prospective franchise owners with business opportunities. person with the social conscience could do well in tutoring or running a day-care business, Fagan said. “Where someone’s an achiever, we show them three or four businesses and they just run with it,” Young added. “People come in wanting to look at 7-11, Subway, and we send them in a different direction,” Fagan said. “Food is an up-and-down cycle. How many cups do you have to sell to pay $5,000 rent? We have a client, who wanted to open a yogurt store, now looking at the sign-manufacturing business,” she added. Another now wraps Disney buses, at $10,000 a pop. Ideally, a franchise business deals with something that can’t be outsourced, and has less expensive rent, fewer employees and more reliable employees — such as working with graphic designers rather than high school kids, Fagan said. “We handle some food, but it’s not our focus. We’ve been in business for 31 years and have found food is the toughest industry to sustain. The hours are tough. To many people we meet with, lifestyle is key. They want flexibility, want to take a little girl to dance or soccer, and they don’t want to be a slave to business,” she said. And food businesses often come
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with a heftier investment, averaging $150,000, she said. But close to 80 percent of their franchises have been approved by the Small Business Administration, meaning they have to come up with only one-third of the investment, and many are borrowing from their 401K retirement funds. Looking back at the last couple of years, Young noted that many laid-off employees were drawn to opening their own franchise business. But sales of existing businesses definitely lagged, she said. “The business-brokerage community did very poorly because revenues had been so drastically affected by many industries. They were down 20 to 30 percent in revenues; profitability was down. They really weren’t sellable. “I think it’s coming back. We see such a difference this year, especially the second half, compared to ‘09 and ‘10,” she added. As for where to open a franchise, Fagan said that “Palo Alto is a prime place for franchises. Businesses are doing well. The population has made it through the recession. There are a lot of good tech firms. Even without Facebook, there are lots of good firms who like to use local people to do their services.” N — Carol Blitzer
riginally from Taiwan, Amos Wu, now 44, came to the U.S. in 1989 to attend graduate school at the University of Southern California, then moved to the Bay Area in 1997 to work as an engineer at Lucent. But by 2003, he and his wife, Amanda Lee, were looking to start their own business. “We thought it might be easier for us to open a restaurant,” Wu said, given his wife’s background in hotel management and experience working in France and Switzerland. They briefly considered going it alone, but they didn’t have any family members knowledgeable about running their own businesses and were discouraged by information they gathered. “We read some articles that said 50 percent of new businesses fail in the first year; 70 percent of businesses fail in three years. So we wanted to take a more conservative approach to starting our own business,” Wu said, adding that they could minimize risk with a franchise. So they started checking out food franchises, such as Togo’s, Quizno’s
‘I wish I would have changed earlier. My wife feels the same.’ – Amos Wu, Subway franchisee They re-opened a University Avenue shop, across the street from the first location, this past August. At first the couple lived in San Jose, but they soon moved to Palo Alto. Today they manage about 10 employees per store, and they each work in all four locations as well. Wu chose Subway for both the product and the company. “We provide value food to customers. Subway in general is still growing — the number of stores, but also sales. People start seeing Subway provides value. Look at the $5 footlong — that has helped us. It really helped us to survive at a difficult time. It’s healthy but also real affordable,” Wu said. Wu not only talks the talk, he eats at Subway most days. “I believe in the food and that the system will do well,” he said.
hen t he economy turned downward, laidoff workers turned to franchise ownership. At least, that’s been the experience at FranNet, a San Jose franchise-consulting business, which, appropriately, is itself a franchise. “We increased our profits by 800 percent, helping people getting into franchises,” said Katie Fagan, a FranNet consultant. Sales for FranNet this year are ahead of 2009 and 2010, said Joan Young, president of FranNet and Sunbelt Business Brokers, San Jose, describing both companies as the largest franchise-consulting group in North America and the largest business-brokerage firm in the world, respectively. In the U.S. alone, there are 3,100 franchise companies in more than 80 industries, Fagan said. FranNet represents 110 of those companies, opening new locations; Sunbelt sells existing businesses. These companies are in a variety of industries, including home health care, tutoring and health and wellness, which did particularly well during the recession, Young said. And then there’s food, home repairs, automotive and small-business support services. Opening a franchise is not for everybody, Fagan said. “If you don’t want to follow a system, it’s not for you. It’s a good hybrid, if you come from corporate. Engineers make amazing franchisees; they’re systematic,” she said, adding that they helped an ex-Nike executive get into the rubbish-removal business. Part of the attraction for franchisees is that most companies do not require prior experience in the industry. Instead the corporate office offers specific training on running a small business, provides marketing and advertising help, gives product-purchasing breaks, and offers the chance to network with other franchise owners. That support comes at a price, usually beginning with a franchise fee ($25,000-$50,000) for the rights to use the name, systems, trademarks; a royalty fee (4-10 percent of revenue); and a national advertising fee (1-2 percent of monthly revenue) (see chart). When a client is exploring whether owning a franchise is the right choice, FranNet puts him or her through a series of assessments, identifying the person as an “achiever” (go-getter, salesoriented), “emulator” (imageoriented, empire builders), “belonger” (offers corporate support, likes proven systems) or “societal conscious” (makes a difference, contributes to society). The achiever/belonger might find a good fit with business coaching or home health care; the
and Jamba Juice. Some were rejected because of location; for Jamba Juice they were told they’d need to start by opening five stores. “At the time we wanted to start small. We think this is too big (of a) commitment for us,” Wu said. Ultimately, Wu and Lee bought an existing Subway franchise on University Avenue in Palo Alto in 2003, followed by one on El Camino Real in south Palo Alto in 2006, California Avenue in 2007 (a month after a fire at Walgreens closed his adjacent University Avenue location), and Midtown in 2008.
Dominga Gonzales manages — and works the line at — the California Avenue Subway.
Cover Story a general manager to help keep the businesses going, Wu said. But family is still their first priority. “If we sacrifice our family, what’s the point of doing business? We have one 8-year-old daughter. We always keep the cell phone within reach for her,” he said.
California Avenue Subway Manager Dominga Gonzales bags a sandwich for a customer. Although he easily puts in more than 40 hours a week, Wu said: “I wish I would have changed earlier. My wife feels the same. “We want to do this business long term, so we must enjoy our business. It’s not only ourselves but (we want to) keep our employees happy,” he said, noting that some have worked for them for more than eight years. The couple has chosen to build their business slowly. “When we opened, we took three
years to open a second store. We have hands-on experience for three years. Now our focus is training people to do the right things,” Wu said, noting that he and Lee come in at different times, morning, evening and night. “On University Avenue, we’re open 24 hours,” he added. In addition to training the Wus on how to run a Subway franchise, corporate also offered demographics, including where competitors
are located and what the average disposable income is. “That information helped us decide what location was more doable than others,” he said. He also meets monthly with his development manager, who handles franchises in Santa Clara and San Mateo counties, to analyze the competition and talk about how to draw customers in. “This system works. They listen to the individual franchisee’s voice.
It’s flexible. Corporate understands what individual stores need,” he said. And when the Walgreens fire happened, the Wus were able to terminate the lease and salvage some equipment, including the bread oven. It took nearly four years to find the right-sized space on University Avenue. In the future, the Wus could open another Subway, perhaps in Los Altos. Once they hit five, they’ll need
isa Anter, now 36, entered the corporate world by working for Reebok after earning a masters degree in international studies and an MBA. Then she was recruited to work in Denver at Johnson Controls, a Fortune 100 company headquartered in Minneapolis. But after a few years, corporate life palled. “I had been working for huge corporations and was very disenchanted. As a young woman working in a predominantly male field, I found it really difficult. “I think it would be different for me today, in my 30s, but it didn’t work in my 20s,” Anter said. After her parents moved to Santa Barbara County, she decided to follow them to California and open a couple of Curves franchises in the Bay Area. She considered opening her own business but said that buying “a franchise is less risky. Curves had a 10-year track record.” At first she looked at San Francisco, but its younger demographics didn’t suit the Curves model: 40- to 60-year-old women with a finite amount of time for working out. As it turned out, most of the dozen Curves franchises in the City have closed, she said. “I wanted a business where I wouldn’t work every weekend — that took out restaurants and sandwich shops — provided a service that I believed in, could really stand behind, and could provide me with a stable income so I could live my life and run a small business,” she said. (continued on page 38)
What does it take to open a franchise? Min. net worth
Estimated total investment
5% of gross revenues ($195-$795)
3% of gross revenues ($95-$395)
8%/week of gross minus sales tax
4.5%/week of gross minus sales tax
TEAM LOGIC IT
7% of revenues
1.2% of revenues
4% to 7%
4% of gross sales
4% of gross sales
3.9% to 6.9%
$32-$36 per student per month
7% to 10%
KUMON LEARNING CENTER TERMINIX
Sources: www.curves.com; www.subway.com; www.kumonfranchise.com; TeamLogic IT marketing department; www.franchisebusinessreview.com; http://roundtablecloud.com/rtp/franchising_ form.asp; www.entrepreneur.com (for missing Curves, ServiceMaster, Terminix, The Maids data); www.thefranchisemall.com (for estimated total revenue for Round Table pizza) *>ÊÌÊ7iiÞÊUÊ iViLiÀÊ]ÊÓä££ÊU Page 35
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