Franchises and Veterans are Good Matches
There’s been chatter in the mainstream press that franchisors are targeting veterans – and that this is a bad thing.
My own observation is that some franchises can be excellent matches for veterans who want to run their own businesses.
Of course, success depends on the individual veteran who undertakes the opportunity. A study released by Franchise Grade earlier this year indicates that healthy franchisors do a pretty a good job selecting franchisees and putting them on the path to success. Franchise Grade (www.franchisegrade.com) is a company that compares and grades franchise systems for their investment value.
OUTPERFORMING OTHER BUSINESSES
It is no secret that the overall economy has not been welcoming these past few years. This is especially so for people whose work experience is outside the business world – obviously including veterans. Franchises, however, have been doing well, particularly when you compare them with their corporate peers.
One reason for their success: They deliver products and services that cannot easily be outsourced. Barbershops and beauty shops, gyms, restaurants, and senior care franchises provide direct services that cannot be provided over the phone by someone who does not even see the customer.
Franchise Grade studied franchise systems with at least 25 sites that had been operating for at least seven years. Here is what it found for the period from 2008 to 2013, which overlaps with the Great Recession:
- Franchises grew an average of 1.5% each year.
- Franchises labeled as “healthy” grew by 4.1% each year.
- The number of new franchise locations grew by nearly 14%, in no small part because of the availability of smart, skilled people looking for opportunities. Healthy franchisors are the ones that have figured out what works.
- They focus on long-term growth, not a quick buck.
- They define geographic territories for franchisees to avoid intercompany competition.
- They do not pay much attention to fads, but focus on steady trends.
- They require franchisees to have a certain amount of financial reserves, and are ready to work with them to get over hurdles.
- They conduct in-person site visits, particularly during the first two years.
Of course, some franchise businesses run into problems. Nothing in life is guaranteed; certainly veterans understand this.
Franchise Grade also examined turnover among franchises, a factor that measures activities and changes. The number-one reason for turnover was not termination at any time during the study period. It was transfers, which accounted for 39% of all turnover activity, and dominated turnover for each year.
Terminations, which accounted for 23% of turnover activity, was high in 2009 and dropped steadily each year through 2014. Smaller numbers of activity were seen in non-renewals and reacquisition of a franchise.
Finally, there is a category called ceased operations, which includes abandoned franchises and inactivity. This was the second-most common cause of turnover, and was unsteady over the study period. Ceased operations are most common in home-based franchises.
THINKING LIKE VETERANS
Why do franchisors “go after” or “target” the military? Because franchisors think like veterans! Both focus on training, reviews, and striving to exceed expectations.
SportsClips is a good example. Its founder, Gordon Logan, trained as an engineer and flew C-130’s for the United States Air Force before joining PriceWaterhouse. He later worked in the spa industry.
As Logan and his wife saw traditional barbershops disappear, they recognized a lack of services for men and boys. They opened their first Sport Clips shop in 1993, and began franchising it two years later.
SportsClips has a strong infrastructure that includes online and in-person training at a five-day boot camp, and a thorough orientation program. Because sites are spread out, franchisees often help and even mentor each other, rather than view one another as competition. As a result, turnover from site closures is nearly zero for Sport Clips.
In a 2013 interview with Nasdaq, Logan explained that the company tests all new products and services in its 25 company-owned stores before they go to franchises. “We don’t compete with our team leaders [franchise owners],” he said, and “we aren’t in the business of selling things [to them].”
Healthy franchises like Logan’s have a system in place that sets up franchisees for success. Follow the system, and you will do well.
Maybe this is what separates franchise owners from other self-employed entrepreneurs: Franchise owners are comfortable working within systems that they have proven successful. Veterans certainly appreciate the fact that systems that have been tested can stand and deliver.
And both franchisors and veteran franchisees can, and do, identify opportunities for improvement. They are like Hap Arnold: look at what you have and make it better.
VETERAN OWNERSHIP MAKES GREAT SENSE
Franchise founders are entrepreneurs. But unlike many of their peers, they are eager to share the business models they create.
Sure, the founders earn money – some retire with millions of dollars – by franchising their ideas. But these ideas had to be successful to thrive. Smart franchisors want to see their creations flourish in the greater community. And because veterans appreciate models that work, it makes sense to seek them out as potential franchisees.
Moreover, a lot of franchises can be purchased for modest amounts, an appealing prospect for many veterans. While there are franchises that require $100,000 or more to open, there are plenty to be found for less than half that amount. I have uncovered a couple that can be started for less than $1,000.
Keep in mind that service franchises are much less expensive than food-oriented ones, which require larger physical brick-and-mortar locations and need a lot of inventory. There is a tax-service franchise can be started for as little as $800. A well-known travel franchise can be started for under $11,000.
Most franchisors require an investment of around $30,000. Many work with financial lenders and banks to ease the path for franchisees. Some lenders work specifically with veterans and services such as our own Veteran Franchise Centers.
Franchisors also cut through a lot of the red tape that leaves many independent business owners in tangles. In addition, large franchise chains can afford to hire lobbyists and advocates in Washington to keep an eye on potential laws and regulations and make sure their industry has a place at the table.
SATISFIED WITH THE BUSINESS
Look at satisfaction scores among the most successful franchises, and you will find they are high. Look at poorly-ranked franchises, and satisfaction is not so great.
Franchise Business Review (http://franchisebusinessreview.com), a market-research firm based in Portsmouth, New Hampshire, conducts independent surveys of franchisee satisfaction. Leading its FBR 50 list is a senior care franchise, followed by a concrete cutting franchise. Number three is a blinds distributor. These are entirely different industries. Yet their franchisees are happiest. Why?
Talking to franchisees, franchise founders, and plain old research shows that the number-one satisfaction point is confidence in the franchise. In second place is a feeling of belonging to something larger than just a business.
What gives a franchisee that feeling? The same things Franchise Grade identified in healthy franchisors: providing training and support, and a head office that maintains good relations with franchisees.
Finally, I think that the efforts franchisors make to ensure their franchisees are good matches are really paying off. Very, very few franchisors take all comers. Because franchisors are founded by some of the most creative, entrepreneurial types around, they take the job of identifying the right franchisee candidates very seriously.
David E. Omholt is a franchise advisor with Veteran Franchise Centers (VFC) – a RecruitMilitary strategic partner. His company offers a free service to veterans looking to learn more about the franchise buying process and options in the market. Omholt is a Certified Franchise Executive (CFE) and a frequent speaker on the subject of franchising on talk shows, at industry conferences, and on college campuses. He has been both a franchise licensor and a franchise licensee. Omholt is available at 866-246-2884 or firstname.lastname@example.org.
By David E. Omholt